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China tech

China's Luxshare deepens Apple ties in $930m supply chain deal

Seller Pegatron set to shift resources with investments in India and Vietnam

A Luxshare plant in Guangdong, China. The Chinese company is now buying into Pegatron's casings business. (Photo by Takashi Kawakami) 

TAIPEI -- Apple supplier Luxshare Precision Industry is making a 6 billion yuan ($926 million) investment in an iPhone supply business owned by its rival Pegatron -- a major win that will help the fast-growing Chinese group become a more important production partner for the U.S. tech giant.

Luxshare, already a key AirPods and Apple Watch assembler, said in a stock exchange filing on Thursday that it is taking a stake in Pegatron's metal casing manufacturing unit, Casetek Holdings. Casetek makes metal casings and frames, a crucial high-end component in making iPhones.

After the strategic investment -- via a capital increase in Casetek's subsidiary in China -- Luxshare will own more than 48% of the entity. Casetek will hold around 46% and the Chinese company's employees and executives will have the right to buy the rest of the shares.

Luxshare will hold three out of five boardroom seats with the right to appoint a new chairman in the casing company, according to Pegatron's filing with the Taiwan Stock Exchange.

"Following the strategic investment, Luxshare will hold around two thirds of Casetek's assets and employees in China, including the company's biggest casing plant in Jiashan, which handles all of Casetek's business with Apple," a source familiar with the deal told Nikkei Asia.

This marks the latest in a string of Luxshare investments in key parts of the Apple supply chains. Luxshare's collaboration with iPhone assembler Pegatron on casings could help the Chinese tech company gain critical access to iPhone assembly know-how and deepen its engagement with the California tech giant.

Luxshare last month bought around 45% of iPhone camera module maker Cowell for nearly 2.2 billion Hong Kong dollars ($283 million), becoming its biggest shareholder. Previously Luxshare bought smaller iPhone assembler Wistron's iPhone assembly plant in the Chinese city of Kunshan for 3.3 billion yuan last summer.

Pegatron said the deal will make it a partner with Luxshare in metal casing technology development and also help it better allocate its global manufacturing resources.

"Industry peers can compete against each other but they can also collaborate too. We expect this collaboration would enable Pegatron to better use the company's overall resources more efficiently," Pegatron Vice Chairman Jason Cheng said in a press statement.

The trend of global supply chain restructuring amid the U.S.-China trade war is forcing suppliers to rethink and rebuild regional supply chains to address different markets, he added.

Nikkei earlier reported that Apple has accelerated its production shift out of China for multiple key products from iPhones, iPads and Macs to AirPods and HomePods mini.

Pegatron on Thursday said in a separate filing with the stock exchange that it will buy a plot of industrial land in Tamil Nadu of India for 1 billion rupees ($14 million), following its announcement on late Wednesday that it will build a factory in Vietnam for 1.77 trillion dong ($74 million).

The iPhone assembler, which also supplies Tesla, General Motors, Google and Microsoft, last November said it would make its first investment in the U.S.

The moves suggested the Apple supplier is speeding up its efforts to diversify its global manufacturing footprints.

The iPhone manufacturing business, the most lucrative part of Apple product assembly, used to be dominated by bigger Taiwanese rivals such as Foxconn and Pegatron.

But Luxshare has been keen to muscle into the iPhone assembly business as soon as possible -- even sending a group of employees to Wistron's plant to learn the production know-how before the deal was closed, Nikkei first reported.

Many of Luxshare's bids have been with the consent of Apple, which wants to diversify its supply base.

Luxshare has long hoped to break into the casings business. Last year it wanted to buy iPhone casing plants owned by another Taiwanese company, Catcher Technology, but the talks collapsed. The unit was later sold to another rival Lens Technology of China, which supplies glass to Apple.

Nikkei staff writer Cheng Ting-fang contributed to the report.

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