According to a report from Nikkei today, Apple is encouraging Luxshare, a long-time supply chain partner, to expand its business and encroach on Foxconn’s turf. Right now, Luxshare primarily makes Apple AirPods but is investigating an investment in metal casing manufacturer Catcher (which is part of the iPhone, iPad and Mac supply chains).

Nikkei says Apple is keen on Luxshare going ahead with growing its business as it thinks Luxshare could become a viable competitor to the Taiwanese assembly giants Foxconn and Pegatron.

For Apple, supplier diversification gives them access to better quality components at lower prices. It also helps to reduce risk if one supplier faces difficulties. Most components in the iPhone are sourced from multiple companies, although there are exceptions like the A-series chips being manufactured exclusively by TSMC.

One area where the supply chain still wields a lot of power is final assembly. Foxconn dominates this market, followed by Pegatron to a lesser extent. Foxconn’s business skyrocketed over the last decade as it benefited from the explosive growth of the iPhone. If more assembly companies existed, Apple could negotiate better pricing and improve its own margins, so it shouldn’t come as too much surprise that is all for the proposed Luxshare expansion.

In some cases, Apple has even put up its own money in order to try and secure multiple suppliers for parts. In 2018, Apple bought ownership in Toshiba Memory in order to retain competition in the NAND markets. It has also committed hundreds of millions in investment in Japan Display to help the display manufacturer survive and evolve its manufacturing, to try to limit Samsung Display’s dominance of OLED displays.

Whether Luxshare goes ahead with the investment in Catcher, and then continues towards becoming a supplier capable of full device assembly, remains an open question. It naturally represents a big risk for the company. Whilst Foxconn benefited greatly from the last ten years of Apple’s growth, it remains uncertain whether another huge increase in device sales is on the horizon.

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