Apple/Luxshare: AR deal shows growing trust in Chinese suppliers

One AirPod at a time, Chinese supplier Luxshare Precision is taking on the world. The company’s plan to become Apple’s main supplier has almost been achieved. It started by producing Apple’s wireless headphones. Now it has its sights fixed on the iPhone maker’s augmented reality headsets.

For the first time, a Chinese supplier has been hired to develop a new premium Apple product. Luxshare can now add AR headsets to the list of Apple products it supplies, including iPhones and Apple Watches.

Uncomfortable headgear and motion sickness have hampered mass uptake of AR devices so far. But Apple has the world’s largest AR platform. Its long-awaited headsets have the best chance of turning the tech into a mainstream product.

The AR devices are also expected to be one of Apple’s most expensive products, with prices forecast at between $3,000 and $5,000. The fact that a local Chinese company has been hired for early development and production speaks to the improving quality of Chinese suppliers. It also highlights the difficulty of diversifying manufacturing away from China.

Until now, Taiwanese suppliers such as Foxconn and Pegatron dominated the production of Apple’s new products, particularly premium models in the early stages of development. Luxshare only received its first major order to produce premium iPhone models earlier this year, despite being an Apple supplier since 2011.

For Apple, creating jobs in China is a good move. Sales of Apple products there remain strong despite lockdowns last year. The company reached its highest monthly market share in China in the last quarter. Diversifying suppliers also helps cut down on production disruptions.

Shares of mainland-listed Luxshare are down 26 per cent in the past year. But they trade at 19 times forward earnings, a premium to Taiwanese rivals.

The new deal with Apple should increase that difference. Foxconn shares tripled in two years following its 2006 listing. The most notable changes to occur in that time were the first orders to manufacture Apple iPhones and MacBooks. Good news for patient holders of Luxshare.