As revealed by Nikkei Asia, the Chinese electronics contract manufacturer Luxshare Precision Industry is set to challenge its Taiwanese arch rivals, Foxconn Technology Group and Pegatron Corp., in their iPhone manufacturing business.
Spending up to CNY$11 billion, Luxshare is reportedly constructing a massive manufacturing complex in the eastern Chinese city of Kunshan.
The new site will be central to Luxshare ’s ambition to boost its share of iPhone assembly: it has churned out 6.5 million iPhones in 2021, and aims to produce up to 15 million iPhones as early as 2022. Luxshare already owns an iPhone assembly site in Kunshan, purchased from the Taiwanese company Wistron Corp. in 2020.
Impressed by Luxshare’s swift pace, an Apple supplier executive who visited the new site told Nikkei Asia that it could pose a threat to Foxconn and Pegatron sooner than expected. Currently, Apple ships 200 million iPhones per year. 60% of which have been made by Foxconn, with Pegatron accounting for another 30%.
♦ Further reading – Metaverse, made by whom? Taiwan and China vie for an answer
For Luxshare, a traditional supplier of domestic smartphone makers like Xiaomi, Oppo and Vivo, Apple represents a new growth opportunity. From its sites in India and Vietnam, Luxshare, founded by a former employee of Foxconn’s assembly line, has been making more and more Apple products, such as Apple Watch and AirPods. By providing assembly and testing services for the chips inside AirPods, Luxshare even expanded into semiconductor industry.
According to Jeff Pu, a tech analyst with Haitong Securities, Luxshare was among the earliest Apple suppliers establishing production presence in Southeast Asia, as a part of Apple’s diversification strategy against U.S. tariffs on goods from China.
Luxshare’s flexibility and cost reduction ability, partly thanks to state subsidies, also suit Apple.
Metaverse is the real battlefield
Another Apple supplier executive believed that Foxconn’s significantly larger manufacturing capacity gives it a definitive edge against its Chinese competitor. Foxconn’s iPhone plant in the Chinese city of Zhengzhou is reportedly 8 times larger than the Luxshare facility in Kunshan. The executive still cautioned that Luxshare would seek to close its gap with Foxconn and Pegatron, gradually overtaking the latter.
In fact, the arrival of metaverse might accelerate the pace of competition, and Taiwanese manufacturers might find themselves losing out in the battlefield of the next decade. The belief that AR headsets will replace iPhones has gained traction among analysts and tech executives. Even TSMC shares this vision: Mark Liu, TSMC chairman, observed that the development trajectory of AR/VR devices follows that of smartphones. Improvements in cost, weight and battery life would eventually enable their wide adoption, phasing out smartphones.
♦ Further reading – Forget iPhone: TSMC is already after metaverse
However, when it comes to metaverse, Chinese manufacturers, armed with subsidies, have taken an early foothold. In VR device contract manufacturing, Chinese players have accounted for 70% of the market. On the contrary, the small production volume in the early days of AR/VR devices has gradually pushed Taiwanese manufacturers out of the market.
Ming-Chi Kuo, an analyst from TF International Securities, estimated that Apple’s second-generation AR/MR devices would enter mass production in the second half of 2024, with significant improvements in battery life and weight.
According to Kuo, between 2.5 million to 3.5 million of Apple AR/MR devices will be shipped in 2023. By 2024, between 8 million to 10 million units will be shipped. While Pegatron will manufacture Apple’s first generation of AR/MR devices due in Q4, 2022, Luxshare will manufacture the second-generation devices.
Pegatron chairman, T. H. Tung, is still optimistic towards Taiwan’s future role in metaverse, and maintains that Taiwan is not lagging behind. Tung perceives metaverse to be a realm still undefined, with its practical applications still under exploration. “For metaverse and the associated AR/VR industry to really take off, finding its ‘killer application’ is the key,” observed Tung.