Apple may shift a larger portion of iPhone production to Pegatron, in order to comply with the iPhone sales ban injunction announced by a Chinese court on Monday. According to a report from Nikkei, iPhones assembled by Foxconn and Wistron are in infringement of Qualcomm patents … but Pegatron-produced iPhones are not (Qualcomm confirmed Pegatron is exempt).
Pegatron has a patent licensing agreement in place with Qualcomm that covers the two patents at the center of the ban. Apple believes that if its hand is forced, it can (at least partially) substitute Foxconn and Wistron assembly with Pegatron.
As explained in the Nikkei report, each iPhone manufacturer has their own patent license with Qualcomm, conducting negotiations independently. Apparently, Qualcomm’s patent agreement with Pegatron covers more of its IP portfolio than the similar agreements signed by Foxconn and Wistron.
The report says Apple is in early talks with Pegatron about whether it could take on more of iPhone orders. One problem with this plan is that Pegatron’s capacity is simply less than what Foxconn can offer Apple. Apple would have to be more fastidious with supply chain resource allocation, making iPhones for sale in China at Pegatron specifically. The company is in preliminary discussions and has not yet changed its assembler allocations, as reported by Nikkei.
Nikkei estimates that Apple would lose about $5bn in revenue for the remainder of 2018 if the China iPhone ban came into effect. Utilizing Pegatron would allow Apple to minimize this loss.
Of course, manufacturing magic tricks may not be necessary if Apple can get the ban overturned in court. It will also use every legal tactic possible to delay enforcement as much as possible, just as Qualcomm uses every juridical tactic to apply even more pressure. Earlier today, Apple said it will release a software update to Chinese iPhone users to make iOS in compliance with the patents under study. The Chinese court has yet to comment whether that is sufficient.
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