December 20, 2017 4:50 pm JST

Apple's Chinese suppliers catapult to a new level

Luxshare, hailed by Cook, is among the winners

CHENG TING-FANG and DEBBY WU, Nikkei staff writers

Luxshare founder Grace Wang, center, and Apple CEO Tim Cook at the company's Kunshan factory near Shanghai in December © Apple

TAIPEI -- In early December, Apple Chief Executive Tim Cook toured a Shanghai factory owned by Luxshare ICT, a Chinese company that has risen from obscurity in the last decade to become a key supplier to the U.S. tech giant. Reflecting later on what he saw, Cook praised Luxshare founder Grace Wang, who started out as a factory worker on a Foxconn production line and ended up the leader of a tech company with more than 20 locations around the world. "This is an extraordinary example of a Chinese dream being realized," Cook said.

Besides being an example of the Chinese dream, Luxshare is also a great demonstration of just how transformative a contract with Apple can be. The company began supplying connector cables for the iMac in 2009, five years after Luxshare was founded in Shenzhen. Since then, it has grown into a tech component empire, supplying cables, connectors, wireless chargers and the new wireless earbuds. This success has been amply rewarded by investors: Its shares in Shenzhen have surged more than 530% over the past five years, and more than 70% so far this year. If its growth continues, Luxshare could rival Taiwanese powerhouses Foxconn -- also known as Hon Hai Precision Industry -- Pegatron, Quanta Computer and Inventec as an assembler.

Chinese companies such as Luxshare have become more important to Apple over the last decade, when the success of the iPhone made it the world's most valuable company. Apple's China-based suppliers have more than doubled over the past five years to 19 companies in 2017, up from only seven in 2012. (If Hong Kong-based suppliers are added to the list of those from mainland China, the total rises to 28.) China is the only country that shows substantial year-on-year growth in terms of amount of Apple suppliers, according to an analysis of component lists by the Nikkei Asian Review.

Apple began to disclose the suppliers on an annual basis in 2012, with each list containing some 200 names -- including component providers and others -- representing at least 97% of procurement expenditures for materials, manufacturing and assembly.

Based on analysis by the Nikkei Asian Review, U.S.-based suppliers dropped from 48 companies in 2016 to 44 in 2017. Most of them are major global players themselves, including 3M, Corning, Intel, Qualcomm, Western Digital and Micron Technology.

Chinese parts suppliers such as AAC Technologies Holdings and GoerTek -- both of which supply the complex miniature microphones used in iPhones -- have secured top global market-share positions, following only Knowles of the U.S., according to IHS Markit.

Some of China's gains have come at the expense of other Asian economies. Key iPhone battery makers Shenzhen Desay Battery Technology and Sunwoda Electronics, for example, have taken substantial market share from Taiwanese companies such as Simplo Technology and Dynapack.

However, Taiwan still plays a vital role in Apple's supply chain. The island has more than 50 tech companies in Apple's ecosystem, according to the 2017 list, up from 41 in 2012. Taiwan manufactures core processor chips for Apple and supplies to almost all key iPhone chip vendors, including Qualcomm, Cirrus Logic and Analog Devices.

"If a company can be qualified as an Apple supplier, it means that your product is world-class and could make you a star in the stock market ... . But quality must be maintained at the highest levels, otherwise it's very cruel and Apple could easily replace you and move to a rival," said an industry executive at a company in Asia's tech supply chain.

Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
Sector:
Industry:
Electronic Technology
Computer Peripherals
Market cap(USD): 52,327.95M
Shares: 17,328.73M
Asia300

Pegatron Corp.

Taiwan

Market(Ticker): TAI(4938)
Sector:
Industry:
Electronic Technology
Computer Processing Hardware
Market cap(USD): 6,801.93M
Shares: 2,614.09M
Asia300

Quanta Computer, Inc.

Taiwan

Market(Ticker): TAI(2382)
Sector:
Industry:
Electronic Technology
Computer Processing Hardware
Market cap(USD): 7,868.60M
Shares: 3,862.62M

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