Completing the circle of learning, a student garners enough knowledge to challenge her former master. This is not some tale from Star Wars, but a real rivalry within the Apple supply chain.
China’s Luxshare Precision, founded by former Foxconn veteran Grace Wang, is making significant inroads in Apple’s supply chain. This attacks the stronghold of Foxconn founder Terry Gou. Recent violent protests at Foxconn’s iPhone factory, following repeated Covid lockdowns there, provided Luxshare with an opportunity.
Apple is expected to offer mainland-listed Luxshare its first big order to produce premium iPhone models — until now under Foxconn’s remit. Luxshare had already been building its own iPhone factory.
To make up for lost production at Foxconn since November last year, Apple would give Luxshare the rare opportunity to close the gap. The transfer of orders of the premium iPhone 14 Pro represents a crucial breakthrough for Luxshare and a step up the value chain.
Luxshare was previously seen as a minor rival of Hon Hai — the name by which Foxconn is listed in Taiwan. Left out of making sophisticated devices Luxshare had been mostly known for producing Apple accessories such as AirPod earbuds. Its share price has fallen more than a third in the past year.
Foxconn has some distractions as it diversifies into chipmaking and manufacturing electric vehicles and batteries. Partly this stems from necessity — profit margins are historically low for contract manufacturers. Foxconn’s are especially thin at about 2.5 per cent for the past five years.
For Luxshare, with margins double that figure, Apple will back the new orders with investment capital, enabling Luxshare to grow rapidly. Its market value of $29bn exceeds Foxconn’s thanks to the massive demand for AirPods since Apple released them in 2016. Its Shenzhen-listed shares trade at 18 times forward earnings, double that of Foxconn, reflecting high investor expectations. At some point, Luxshare should feel Apple’s buying power pushing down margins, as has Foxconn since 2016.
Near-term, though, Luxshare’s future looks promising. Foxconn shares tripled in the two years following its listing in 2006 when it first received orders for PC motherboards from its early client Intel. As Luxshare accelerates production of iPhones, its stock should follow a similar path.
Luxshare/Apple: Chinese AirPods maker trades up to premium iPhones Republished from Source https://www.ft.com/content/0cb73e8b-1b4b-4010-8805-615f15984228 via https://www.ft.com/companies/technology?format=rss