We first heard from The New York Times that the world’s top contract manufacturer Foxconn is looking past the iPhone amid Apple’s slowing growth. Reuters previously ran an anti-Apple piece which asserted that Tim Cook & Co. are looking to shift from Foxconn to rival Pegatron, which currently builds the older iPhone 4/4S models.
On Monday, The Wall Street Journal ran a story claiming Foxconn is looking to manufacture, market and sell its own mobile accessories compatible with iOS devices. Moreover, the story goes, Foxconn is said to be expanding its high-margin retail operations and investing in content and services.
Today, the Rupert Murdoch-owned newspaper sheds more light on the subject, claiming Cook has re-shuffled Apple’s supply chain and re-iterating that Pegatron will be the “primary assembler” of Apple’s rumored low-cost iPhone, which the Journal expects to be offered “later this year”…
According to the story, under Tim Cook’s leadership Apple is reportedly “dividing its weight more equally with a relatively unknown supplier, giving the technology giant a greater supply-chain balance.”
Cook is putting a greater premium on “risk diversification” and is apparently even more unforgiving than Steve Jobs, who “had been easier at forgiving” Foxconn, his ”favorite manufacturing partner”.
Jobs and Foxconn CEO Terry Gou enjoyed the uniquely close partnership as both were “leaders with a hero complex,” as one of the people said.
Still, Mr. Cook and Mr. Gou have a strong relationship and have known each other even before Mr. Cook joined Apple in 1998, one of the people said.
As for the budget iPhone:
Pegatron Corp. named after the flying horse Pegasus, will be the primary assembler of a low-cost iPhone expected to be offered later this year.
Foxconn’s smaller rival across town became a minor producer of iPhones in 2011 and began making iPad Mini tablet computers last year.
Note to WSJ editors: it’s ‘iPad mini’, not ‘iPad Mini’!
The claim matches up with a recent Reuters article saying Pegatron began hiring an additional 40,000 workers last month needed for budget iPhone assembly work.
It’s interesting that Pegatron’s earlier incarnation, Alpha-Top Technology Corp., back in 1999 packaged first-generation Mac portables by candlelight because a massive earthquake that struck Taiwan at the time had knocked out power.
“At that time, there were a lot of Apple people in my factory, telling us to find a solution,” said Pegatron SVP Andy Tsai. “I bought a lot of power generators, and we even used candles on the packing line.”
Now, Pegatron is ostensibly willing to slash prices and sacrifice margins short-term in order to land more lucrative biz from Apple.
But it’s not just about the money.
People familiar with the matter point to strategic reasons for the shift: risk diversification after Foxconn’s manufacturing glitches last year with the iPhone 5 that resulted in scratches on the metal casings, and Apple’s decision to expand its product lines amid growing competition from Samsung Electronics Co. and others.
Indeed, it only takes one such mistake to fall out of favor with Apple.
A month ago, China Business reported that Apple returned between five and eight million iPhones to Foxconn due to quality issues.
Pegatron shares Apple’s penchant for secrecy, its engineers rarely knowing the details of each others’ work. Sensitive projects are “cordoned off by keycard access”, or even face recognition software, the story has it.
It will be interesting to see how Pegatron goes from a second-best manufacturer to replacing Foxconn and meeting Apple’s insane volume requirements – especially knowing it lost the bulk of the iPad mini production to Foxconn over low yield rates.