TAIPEI / Shanghai (Reuters) – Apple AAPL.O Top iPhone assembler, Taiwan-based Foxconn, has formed a task force to curb the growing dominance of Chinese electronics manufacturer LuxShare, which believes it poses a serious threat to its dominance, with three sources with knowledge of the case he said.
The project was initiated by Foxconn founder Terry Gow, according to sources, to target Dongguan-based LuxShare 002475.SZ, Which is little known internationally, but is poised to become the first mainland China-headquartered firm to assemble iPhones – so far dominated by Taiwanese manufacturers.
The task force, which sources say was created last year, is part of LuxShare’s technology, expansion plans, hiring strategy and whether the company – which currently makes up only 5% of Foxconn’s revenue – by any Chinese government entity is supported.
While the US-China trade war and the coronovirus crisis have increased the pressure on global supply chains, fast-growing technological fights among economic giants have also prompted Beijing to strengthen efforts to make it a world-leading local tech firm – And the mold that fits into Luxchare’s development trajectory.
A source said, “LuxShare is bound to increase … it’s just a matter of how fast it can happen.”
“It makes sense for China to build its supply chain and LuxShare is consistent with that state policy.”
Red supply chain
Analysts say state policy is also becoming clear as China’s “red supply chain” grows, with Chinese companies with clear government support increasingly manufacturing products for Apple and other global firms. .
“Facing the rise of the red supply chain, the threat to Taiwanese manufacturers continues to increase,” the Market Intelligence and Consulting Institute, a think tank supported by the Taiwan government, said in a September report.
LuxShare, whose chairman was once a laborer of Taiwanese Apple supplier Foxlink 2392.TWIn July, acquired two small factories belonging to Taiwanese iPhone assembler Wistron in China. Previously, LuxShare was best known for making Apple’s AirPods.
One of the sources called it a “formidable rival”, and Foxconn has done extensive research on LuxShare, aiming to “completely defeat it”.
Sources, who have direct knowledge of the case and are familiar with Foxconn’s thinking, did not name it, citing the sensitivity of the issue.
Public records show that Luxshare is in the majority of Grace Wang and her brother Wang Laheng, while its minority shareholders include state-owned Chinese investment company Central Huijin Investment Ltd, which holds a 1.38% stake.
Lookshare has received more than 1 billion yuan ($ 148.80 million) in government subsidies from 2016 to the first half of this year, according to a Reuters calculation of its financial reports. Half of that amount came in 2019 alone.
Foxconn told Reuters in a statement that the task force described in this story “is not grounded in facts” and “there was no meeting or any other contact.”
“No other extraordinary actions have been taken by the management team.” It was not detailed.
LuxShare declined to comment. Apple did not respond to a Reuters request for comment.
‘BLOOD IN THE WATER’
LuxShare was founded in 2004 by Grace Wang, who told Taiwan’s Business Today in July that she was once an activist at Foxlink, owned by Gou’s brother, TC Gow.
Apple’s value chain has been driven partly by acquiring smaller component manufacturers, starting with the manufacturing of connector cables for the iPhone and MacBook through the 2011 acquisition of its Dongguan neighbor Lanto Electronics, then By creating acoustic components for the iPhone, and eventually AirPods.
The company’s income has increased, with Apple up its value chain in advance – sales in 2019 by 62.5 billion yuan, up 75% year-over-year.
This accounts for about 5% of Foxconn’s revenue, formally called the Honorable High Precision Industry, although investor bets on the company’s prospects outstripped its market value by about $ 20 billion above the Taiwanese firm’s $ 39 billion market capitalization have taken.
According to Morningstar Research, LuxShare now receives 58% of revenue from Apple
Its most significant recognition comes from the company’s acquisition of Wistron’s iPhone plants in Kunshan in July, which Fuban Research said could help LuxShare capture up to 30% of iPhone production within the next five years.
Two of Foxconn’s familiar sources said that Luxshare was also actively poaching from Foxconn. In one case, one of the sources said, LuxShare offered a 500,000 yuan ($ 75,009) cash advance as a rehabilitation subsidy for a senior Foxconn employee to relocate the family from Taiwan to China.
Construction consultant David Collins in Taipei and Kushan says Chinese companies see both the status of Foxconn’s legacy as a major opportunity to move away from China, as well as to promote it.
“Foxconn’s share price is down nearly 50% from two years ago. They see blood in the water. “
($ 1 = 6.6658 Chinese Yuan Renminbi)
Reporting by Josh Horwitz in Shanghai and Yimo Li in Taipei; Editing by Brenda Goh and Mr. Navaratnam