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Asia300

Apple supplier Pegatron upbeat on premium phone market for 2018

iPhone assembler to increase capex, weighs production in India

The logo of Pegatron, which assembles electronics from Apple Inc’s iPhones.   © Reuters

TAIPEI -- Key iPhone assembler Pegatron's chief executive said Sunday he was optimistic about high-end phone demand for all 2018 despite a quickly evolving smartphone market.

"We are rather positive about the premium phone segment for all of 2018," said Pegatron chief S.J. Liao, during a press conference ahead of the company's year-end gathering. "We will also be benefiting from expanding adoptions of new artificial intelligence and augmented reality features to go into those high-end phones." 

Liao said he did recognize that the overall smartphone market was slowing down but maintained his company would not be affected by the trend. He added that his company would focus only on high-end smartphones and would not seek to compete with China-based assemblers in the manufacture of mid-to-low end phones.

Pegatron's capital expenditure this year would definitely increase from 2017, Liao said. The Taiwanese company spent some $400 million on capex last year.

The Nikkei Asian Review reported in December that Apple is likely to introduce at least three new models of iPhones in 2018 -- two with pricey organic light-emitting diode, or OLED, displays and one with liquid crystal display. Industry sources expect that all three upcoming iPhone models will be equipped with 3D sensing and facial recognition features that only iPhone X had in 2017.

Pegatron chief executive S.J. Liao, left, and chairman Tung Tzu-hsien are optimistic about the company's outlook for 2018. (Photo by Cheng Ting-Fang)

Pegatron is a smaller rival to major iPhone assembler Hon Hai Precision Industry, better known as Foxconn. Foxconn has monopolized iPhone X orders, while Pegatron makes the iPhone 8.

Market watchers said Pegatron is likely to secure more orders from Apple this year and could be the main supplier for the upcoming 6.1-inch iPhone with LCD screens.

This LCD model could come with either a metal back or aluminum metal frame plus glass backs with different colors, according to an industry source.

"We are optimistic that the upcoming LCD phone this year could become a very popular model as it could be a good high-end phone with a more affordable price," said Kylie Huang, an analyst at Daiwa Capital Market.

Huang added that 2018 could be the year that Pegatron's metal casing arm Casetek finally supplies housings for iPhones, the most important product of Apple. It currently only manufactures casings for iPads.

In that case, Pegatron and Casetek may be able to integrate their offerings for iPhone orders this year by virtue of their close links, much like Foxconn does with its own metal frame and casing production unit. Previously, Pegatron took metal casings or frames made by Catcher Technology, a bigger rival to Casetek.

Casetek announced it will spend some NT$18 billion ($614 million) in capital expenditure to expand sites in the southern Chinese city of Jiashan and purchase new equipment to meet likely new orders.

Chairman Tung Tzu-hsien of Pegatron said Sunday his company was confident that such a huge investment plan by its subsidiary could eventually pay off and played down concerns that Casetek could not meet Apple's requirements.

Meanwhile, Pegatron's Liao said his company was carefully studying India and would not rule out the possibility of initiating production in that country.

Pegatron's rivals Foxconn and Wistron already have manufacturing sites in India. Foxconn is making Xiaomi smartphones while Wistron assembles the iPhone SE there.

Pegatron recorded NT$1.19 trillion in revenue for 2017, a 3% rise from the previous year. However, the company's net income was hit by rising labor costs and component shortages, plunging more than 32% year-on-year to NT$3.63 billion for the July-September quarter.

The company's profit for the first three quarters of 2017 was down 19% from the previous year at NT$10.95 billion. The Taiwanese company has yet to report its fourth quarter profit. More than 50% of the Pegatron's sales came from Apple.

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