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WSJ: Apple Assigns Low-Cost iPhone Assembly to Pegatron

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Foxconn’s worst nightmare is about to come true: Apple, its biggest client, which accounts for up to 60% of its revenue, is about to move from it to Pegatron, a rising star in Apple’s supply chain, the Wall Street Journal reports.

WSJ sources seem to confirm what Reuters was suggesting two weeks ago: Foxconn’s monopoly is about to end, because Apple will opt for Pegatron to assemble the low-cost iPhone, instead of the one and only Foxconn. The latter, by the way, has presumably seen this narrow future, and as we previously reported, the Foxconn chairman is weighing up the possibilities the company still has — and there are a few.

Now, WSJ sources point to several reasons why Apple has opted for Pegatron instead of Foxconn, but I think one of the most likely is the difference between the two companies’ operating margins: 0.8% (Pegatron); 1.7% (Foxconn). I point to this statistic because this shift is only for the low-cost iPhone, and Apple does want to keep the costs low.

This however, doesn’t mean that Apple will stop sending the high-end iPhone to Foxconn for assembly, so Apple’s contribution to Foxconn’s revenue will remain at the same level.

What is interesting, though, is that the relationship between Pegatron and Apple is pretty deep; it dates back to 1999.

Pegatron Senior Vice President Andy Tsai said that in 1999, the company he founded, Alpha-Top Technology Corp., landed the contract for Apple’s first-generation iBooks. It wasn’t the best first collaboration: a massive earthquake in Taiwan knocked out power and paralyzed production.

“At that time, there were a lot of Apple people in my factory, telling us to find a solution,” said Mr. Tsai. “I bought a lot of power generators, and we even used candles on the packing line.”

It remains to be seen whether the company will keep its working conditions up to Apple’s standards.

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