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Apple says 'zai jian' to Foxconn, taps Pegatron for new iPhones

Smaller firm named primary supplier of low-cost model

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Apple plans to widen its supply chain for its next-generation iPhone to include manufacturers other than just longtime partner Foxconn, sources say.

The Wall Street Journal reported on Wednesday that the fruity firm has named Taiwanese electronics manufacturer Pegatron the primary assembler of a new, lower-cost version of its iconic mobe that's expected to ship later this year.

This isn't the first time Apple has had dealings with Pegatron. Foxconn's smaller rival began manufacturing a few iPhones in 2011 and it picked up a contract to assemble iPad Minis last year.

But designating Pegatron as its main supplier for a future iPhone model marks a significant shift for Apple, which has tapped Foxconn to build the majority of its mobiles ever since the first model shipped in 2007.

According to the WSJ's sources, the move may simply be a matter of risk management. Foxconn reportedly struggled to build the iPhone 5 to Apple's exacting specifications, leading to lots of returns. Broadening its supply chain to include more manufacturing partners could help Apple mitigate the risk of any future such snafus.

Or, the decision to go with Pegatron could be down to price. Cupertino is thought to be eyeing developing markets such as China and Latin America for its forthcoming frugal phone, which means costs must be kept to the barest minimum. Pegatron is reportedly willing to accept thinner margins than Foxconn in order to win over Apple's business.

According to analysts, Pegatron's new deal with Cupertino means Apple kit should account for more than half of the manufacturer's consumer-electronics and communications businesses for 2013. To keep up with increased demand for its services, Pegatron says it plans to increase its Chinese workforce by as much as 40 per cent in the second half of the year.

Granting such an important contract to Pegatron could be risky, however, because the firm's previous track record hasn't always been stellar. According to reports, its production yield for iPad Minis last year was lower than expected, leaving Foxconn to pick up the slack.

Meanwhile, Foxconn has been looking beyond Apple for the future of its own manufacturing business, after a recent slump in orders from Cupertino caused its revenue for the first quarter of 2013 to plummet 19.3 per cent.

Per usual, Apple has declined to comment on its dealings with Foxtron and Pegatron and any future plans for its line of iOS devices. ®

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