In-depth report details Apple’s shift to Chinese suppliers to ‘cut costs and curry favor with Beijing’

While Apple has long been linked to Foxconn as its primary partner for product assembly, a new report from The Information goes in-depth on Apple’s newfound relationship with Chinese electronics manufacturers. The report explains that Apple has increased its reliance on Chinese partners, both as a way of cutting costs as well as to “curry favor with Beijing.”

Today’s report from The Information comes on the heels of a separate report from the publication earlier this month in which it described a so-called secret deal between Apple CEO Tim Cook and Chinese government officials. Through this deal, Apple reportedly committed to investing more than $275 billion in China over five years.

The report details that Foxconn, which is headquartered in Taiwan, is on the verge of being unseated as Apple’s top supplier by Luxshare, which is headquartered in China:

Luxshare has the potential to unseat Foxconn as Apple’s top supplier. The Chinese company already exceeds Foxconn’s main publicly listed unit in terms of market capitalization, though Foxconn generated roughly $105 billion from Apple in 2020—more than 10 times Luxshare’s haul. But in terms of valuation, Luxshare has also eclipsed major Apple contractors such as Quanta Computer, Pegatron and Wistron, all of which are headquartered in Taiwan. Foxconn has become increasingly concerned about Luxshare’s meteoric rise, including its significantly higher net profit margin, going so far as to form a task force to study the company, Reuters previously reported. (Foxconn denied the report.)

The report explains that Apple’s move to shift more of its business to Chinese companies is part of Tim Cook fulfilling his $275 billion pledge to the Chinese government:

In shifting more business to Chinese companies, Cook, the architect of Apple’s supply chain in China, is fulfilling his pledge to Beijing to expand its domestic tech industry, which will help the country reduce its reliance on companies based outside the mainland, including Taiwan—a country China considers a renegade region. A year after Cook signed the economic agreement with China, Luxshare became the first Chinese company to secure a final assembly contract for a major Apple product, the AirPods, ending the dominance of Taiwanese firms.

Apple’s moves also might win over more Chinese consumers, which at times have shunned Apple in favor of local brands like Huawei based on nationalism. Apple generates nearly 20% of its revenue from the country.

The deal between Luxshare and Apple to have Luxshare manufacture AirPods for the company was viewed as a “turning point.”

A turning point for Luxshare came in 2017, when Apple helped the company manufacture AirPods. Apple originally relied on a single source, Taiwan-based Inventec, to produce the iconic earbuds, which were in short supply in their first year of release. Apple embedded its engineers at Luxshare to teach the company how to assemble the devices over the course of the year, according to former Apple employees.

The AirPods were Luxshare’s first major assembly contract for Apple, catapulting the company into the upper echelons of Apple suppliers that handle, pack and ship finished goods. 

The full report from The Information is absolutely worth a read and can be found here.

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