Apple Rumoured to Switch From Foxconn to Pegatron

Hon Hai Precision Industry Co Ltd (Foxconn) is rumoured to be losing field to rival Pegatron Corp. According to Reuters’ information, about 60% to70% of Foxconn’s revenue is coming from Apple. From this perspective, a Pegatron–Apple collaboration poses as a potential risk for Foxconn, which has been struggling to grow in the smartphone market.

iPhone 5 assembly line Foxconn

The news comes hot on the heels of Pegatron’s hiring process: the company has recently announced that it plans to add another 40,000 workers to its workforce, which currently stands at 100,000 workers.

This announcement fuelled speculations about the cheaper iPhone. Furthermore, some voices began to whisper that Pegatron will likely be the sole assembler of the anticipated low-cost iPhone.

“Pegatron posts a long-term risk to Hon Hai because as it catches up on margins by supplying more components, it can provide more aggressive pricing,” Daiwa Capital analyst Birdy Lu said. “Hon Hai’s margin uptrend is not a guarantee.”

Considering that Pegatron is about a quarter of Foxconn’s size in revenue, it has high aspirations, such as from going from nothing to something, and a possible scenario could look like this: Apple is after cutting costs with the cheaper iPhone, and Pegatron has the ability to offer competitive pricing, which could win an exclusive contract from Apple, which could be assembling the low-cost iPhone.

“Hon Hai would see a flat revenue this year at best… while Pegatron has great growth potentials because it is going from nothing to something,” said HSBC analyst Jenny Lai. “But Hon Hai’s margins would improve, benefitting from getting more component orders.

Foxconn’s chairman has had his moment of revelation — heavily influenced by Apple’s recent performance, or at least the public numbers — as it is planning or to ease its reliance on Apple. Or it could hold out for another exclusive contract with the tech giant.