Apple Shifts To Pegatron For Production, Foxconn Plans To Build Its Own Brand Of LCDs

 @SophieXSong
on May 16 2013 10:37 AM
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Foxconn's founder Terry Gou harbors bigger ambitions than just making iPhones and iPads for Apple. REUTERS/Aly Song

Foxconn (HKG:2038), Apple's longtime collaborator that manufactures Apple’s iPhones and iPads, and Apple (Nasdaq:AAPL) might break up their business arrangement in the near future. Both companies have been looking for other businesses partners, and Foxconn is striving to develop its own brand instead of remaining solely a manufacturer.

Foxconn played a key part in Apple and iPhone’s success -- the iPhone would have certainly been priced higher if Foxconn was not its manufacturer, according to Sohu News. But it was Foxconn that took the heat when its inhumane work conditions became exposed. In addition, Terry Gou, Foxconn’s founder, has long harbored ambitions beyond being Apple’s workshop.

“Foxconn senses Apple’s best time has come and gone,” said Jamie Wang, an analyst at the research firm Gartner. “They need business outside Apple to ensure Foxconn’s own growth and development.” The Taiwan-based electronic manufacturer is already on the move: It's now shifting focus to developing and designing its own LCD TVs.

Many years ago, the same story happened with another Apple manufacturer -- it began to develop its own products to realize a higher profit margin. That company is Samsung.

Now, Foxconn is poised to follow Samsung’s lead. When Gou bought a 10 percent stake in Sharp Corp. (TYO:6753) last year, his intentions were clear. Even though Sharp is suffering heavy losses, its LCD technology still is among the best in the world. If Apple goes ahead with its plans to produce its rumored iTV, then the two former collaborators will become competitors over the next few years.

Foxconn’s transition may not less of a proactive move than a self-preservation measure to help Apple’s shift away from its former main client. After Apple returned a large shipment of iPhone 5s to Foxconn, Apple began to lean more on Pegatron (TPE:4938), a Taiwan-based manufacturer similar to Foxconn. Last week, Pegatron announced that it plans to expand its mainland factories by 40 percent, and Apple is planning to order a “cheaper iPhone." Currently, 60 to 70 percent of Foxconn’s sales come from Apple. 

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