TAIPEI -- Luxshare Precision Industry of China is acquiring its first iPhone assembly plant, paving the way for the company to move up the Apple supply chain and challenge Taiwanese rival Foxconn, which has long dominated production of the iconic device.
Luxshare, already a key supplier of Apple's AirPods, has agreed to buy two Chinese subsidiaries of Wistron for 3.3 billion yuan ($471.5 million). Acquiring these subsidiaries will give Luxshare control of Wistron's key iPhone assembly plant in the Chinese city of Kushan, the Nikkei Asian Review has learned. The move comes after Luxshare's planned acquisition of Catcher Technology, a supplier of iPhone metal frames, fell apart in early June, multiple sources told Nikkei.
"Soon after the final round of negotiations broke down between Luxshare and Catcher due to Catcher's overly high price, the Chinese company proceeded in its talks with Wistron," one of the sources with direct knowledge of the matter said.
Luxshare had been in talks with Catcher for more than a year, but it could not reach an agreement on what would have been the company's biggest investment.
Wistron announced it was selling the subsidiaries in a filing with the Taiwan Stock Exchange on Friday, but did not specify what type of facilities were involved. Multiple sources confirmed to Nikkei that the purchase is of the company's iPhone assembly plant in Kunshan. The deal is scheduled to be completed before the end of this year, pending authorities' approval, according to the filing.
"The decision [to sell the facility] is with Apple's consent and it's part of Apple's plan," a source with direct knowledge of the deal said. "Later Luxshaure will start to do iPhone assembly in China, while Wistron will focus on iPhone manufacturing in India."
Apple also asked Wistron to share some of its know-how regarding iPhone production with Luxshare, sources said. Apple is a key client of both Wistron and Luxshare.
Luxshare, founded by former Foxconn production line worker Grace Wang in 2004, is a fast-rising Chinese tech manufacturer. Although it has not yet entered the iPhone assembly business, it has already become the most formidable rival to Foxconn, the world's largest contract electronics maker and Apple's biggest supplier. Shenzhen-listed Luxshare's market value reached 369.5 billion yuan ($52.79 billion) on Friday, exceeding Foxconn's 1.22 trillion New Taiwan dollar ($41.4 billion) market value, according to data by the stock exchanges of Shenzhen and Taiwan. It also surpassed the market cap of Foxconn's Shanghai-listed subsidiary Foxconn Industrial Internet, at 295.4 billion yuan.
Luxshare first entered the Apple supply chain in 2013, making cables and connectors for the U.S. company. Later it grabbed a bigger share of Apple manufacturing orders, including assembly of AirPods and production of the Apple Watch, which required greater manufacturing skill. iPhone assembly is even more complicated and requires an extremely high level of production expertise.
More recently, the Chinese company, based in Dongguan City, has been quick to respond to Apple's call to diversify AirPods production to Vietnam.
Previously, most iPhone assembly work was done by Foxconn, formally traded as Hon Hai Precision Industry, and Pegatron, with Wistron as the third and smallest assembler making older and cheaper iPhone models. Wistron, which became an iPhone assembler in 2015, has been struggling to deliver stable production performance and efficiency and failed to grab more order allocations from its larger competitors Foxconn and Pegatron.
Wistron declined to comment, beyond saying the deal involves one of the four Wistron manufacturing plants in Kunshan.
Apple and Luxshare did not respond to request for comment as of publication time.
