Is Luxshare posing threat to Foxconn’s iPhone supply business

China-based electronics manufacturer Luxshare can pose major threat to the dominance of Taiwan-based Foxconn, Apple’s top iPhone assembler, Reuters reported.
Apple CEO Tim Cook visits Luxshare's production lineFoxconn’s founder Terry Gou initiated a task force to target Luxshare. The Dongguan-based Luxshare is poised to become the first mainland China-headquartered firm to assemble iPhones for Apple, the report said.

The task force is looking into Luxshare’s technology, expansion plan, hiring strategy and whether the company is supported by any Chinese government entity. Luxshare currently makes only 5 percent of Foxconn’s revenue.

“Luxshare is set to rise … it’s just a matter of how fast it could be,” one of the sources said.

“It makes sense for China to build up its own supply chain and Luxshare is in line with that state policy.”

That state policy is gaining traction with the rise of China’s red supply chain, where Chinese firms with apparent government support increasingly take on the work of manufacturing products for Apple and other global firms.

“Facing the rise of the red supply chain, the threat of Taiwan manufacturers being replaced continues to increase,” Market Intelligence & Consulting Institute, a think tank backed by Taiwan government, wrote in a September report.

Foxconn told Reuters in a statement the task force described in this story is “not grounded in facts” and there were “no meetings or any other contact.”

“There have also been no other extraordinary actions taken by the management team.” It did not elaborate.

Luxshare chairwoman Grace Wang was once a worker at Taiwanese Apple supplier Foxlink. Luxshare acquired two smaller factories belonging to Taiwanese iPhone assembler Wistron in China in July.

Previously, Luxshare was best known for making Apple’s AirPods. Apple CEO Tim Cook in 2017 visited the AirPods manufacturing plant and appreciated the efforts of Luxshare.

Public records reveal that while Luxshare is majority-owned by Grace Wang and her brother Wang Laisheng, its minority shareholders include state-owned Chinese investment company Central Huijin Investment with 1.38 percent stake.

Luxshare has also received over 1 billion yuan ($148.80 million) in government subsidies since 2016 to the first half of this year, a Reuters calculation of its financial reports shows. Roughly half of that sum came in 2019 alone.

The company’s revenue has risen in tandem with its advance up Apple’s value chain – sales in 2019 hit 62.5 billion yuan, up 75 percent year-on-year.

That’s roughly 5 percent of Foxconn’s revenue. Investor bets on the company’s prospects have lifted its market value to roughly $20 billion above the Taiwan firm’s $39 billion market capitalisation.

Luxshare gets 58 percent of its revenue from Apple, according to Morningstar Research.

The company’s July acquisition of Wistron’s iPhone plants in Kunshan marks its most significant deal yet. Fubon Research said the deal could help Luxshare capture up to 30 percent of iPhone production within the next five years.

Luxshare has been poaching from Foxconn. Luxshare offered 500,000 yuan ($75,009) cash upfront as a relocation subsidy for a senior Foxconn employee to move family from Taiwan to China.

David Collins, a manufacturing consultant based in Taipei and Kunshan, says that Chinese firms see both Foxconn’s legacy status, coupled with its move away from China, as prime opportunity to grab it.