The Chinese supply chain, led by Luxshare Precision, has secured Apple AirPods and iPhone assembly orders, while another ODM manufacturer Wingtec Technology, is gradually taking a slice of Taiwan-based orders. This development is poised to impact orders from Apple’s notebook computer between Taiwanese and Chinese factories, creating a ripple effect within the whole supply chain.

TrendForce’s Perspective:

• Taiwanese Manufacturers Face Reallocated Apple Notebook Orders as Chinese Suppliers Strengthen Their Position

Regarding Apple, MacBook assembly was primarily handled by Taiwanese manufacturers Quanta and Foxconn until 2022. With Chinese firm Wingtec progressing from small-scale trial production to mass production of M1 MacBook Air, according to reports in Chinese media, Wingtec’s Yunnan Kunming factory has also received 3C quality certification for M2 chips. This confirms that Wingtec Technology will take on a portion of the future MacBook Air orders. As Foxconn secures the production of larger MacBook Pro models, this shift will primarily affect Quanta’s share in producing Apple computers. Wingtec is set to become the first Chinese factory to manufacture complete Apple MacBook Air units. If Wingtec consistently meets Apple’s product quality requirements and secures additional orders, the fourth quarter of 2023 will become a battleground for Taiwanese manufacturers defending their orders for Apple notebook computers.

• The Taiwanese factories are accelerating the relocation of Apple notebook order production bases to Southeast Asia.

Given the slower recovery of the COVID-19 situation in China, rising labor costs, production capacity constraints, and restricted order volumes approved by customers, various electronic contract manufacturers have shifted their production focus to Southeast Asian countries, including Thailand, Malaysia, and Vietnam. Configuring production capacities for new and existing models, operating new factories, and rapidly transitioning supply chains are challenges of Taiwanese factories.

As Apple’s revenue from notebook computer products gradually contracts, the company is actively pressuring contract manufacturers to lower their product quotes. Additionally, China faces difficulties in recruiting workers, with local manufacturing labor transitioning into service-oriented roles such as live streaming, food delivery, and ride-hailing. This labor shortage has prompted Apple to actively demand that Taiwanese contract manufacturers accelerate the adoption of automation equipment to streamline factory operations, increase production output, and reduce labor costs. In light of the pressure from Apple’s orders and the emergence of the Chinese notebook computer supply chain, Taiwanese factories need to undergo further transformation to maintain their alignment with Apple and offer greater productivity and price advantages.

(Photo credit: Apple)

According to Taiwan’s TechNews report, Chiang Shang-yi, former TSMC Co-COO and current Chief Semiconductor Strategist at Foxconn, shared insights during a Taiwan Television interview. He discussed his past role at TSMC, the potential impact of U.S. export restrictions on China’s semiconductor development, and revealed previously undisclosed stories. Chiang emphasized the need to reevaluate China’s approach to semiconductor manufacturing.

Chiang previously stated that he wouldn’t return to China, and when asked about geopolitical challenges in the region due to U.S. chip restrictions, he shared his experiences in China.

He mentioned that his initial focus was primarily on research and development, and while technical challenges were manageable, the most significant challenge was related to human interactions. Chiang also disclosed two instances where he experienced a lack of trust from Chinese authorities.

He explained that the headquarters of SMIC is in Shanghai, with its largest facility located in Beijing. On two separate occasions, senior executives were scheduled to visit the Beijing facility, and Chiang was instructed to participate. However, he was informed just a day prior that he, as a non-Chinese national, would not be allowed to attend these visits. Similar incidents occurred twice, leaving him with a rather uncomfortable impression.

Regarding the U.S. chip ban, Chiang acknowledged that China had invested heavily in semiconductors over the past decade, and the recent restrictions were a more recent development. However, he emphasized that even before the restrictions, China’s semiconductor industry faced challenges and that the way China pursued semiconductor development needed reevaluation.

On the other hand, Chiang discussed why TSMC has been successful, attributing it to its business model and rapid decision-making. He mentioned a proposal he made to establish a packaging unit within TSMC to address the bottleneck created by the end of Moore’s Law. This proposal, referred to as “Advanced Packaging,” was quickly approved by TSMC’s founder, Morris Chang, who provided the resources to make it happen. This initiative led to the development of CoWoS (Chip-on-Wafer-on-Substrate) technology.

However, despite the innovation, CoWoS initially faced challenges gaining business traction and was even considered a joke within the company. Chiang had to work hard to promote the technology to customers. During a dinner with a Qualcomm executive, Chiang learned that CoWoS’s price was too high for consideration, with the executive requiring a price reduction to one cent per minimeter square. Chiang returned to TSMC and urged R&D to lower costs while maintaining performance, eventually leading to the success of InFO (Integrated Fan-Out) technology.

Chiang mentioned that the first customer to embrace CoWoS technology was Huawei, primarily for GPU chips, well before AI applications gained prominence. He humorously credited the Qualcomm executive for saving him with a single sentence and emphasized that innovation needed to be practical, not just technological, to succeed in the industry.

According to a report by Taiwan’s TechNews, Chinese electric vehicle giant BYD group announced on yesterday its intention to acquire the mobile electronics manufacturing business of American electronic contract manufacturer Jabil for nearly $2.2 billion in cash, encompassing operations in Chengdu and Wuxi, China. This move is widely interpreted as BYD’s strategy to infiltrate Apple’s supply chain, potentially encroaching on orders from Foxconn and Pegatron.

Notably, Jabil has been a significant supplier of iPhone components to Apple in the past. With BYD acquiring Jabil’s business in Chengdu and Wuxi, there’s speculation that BYD’s aim is to compete for orders from Foxconn and Pegatron. This development has again brought attention to the Apple supply chain dynamics.

In fact, recent times have seen frequent actions within the Apple supply chain landscape. Just last week, China’s Wingtec’s Kunming plant received the “3C Quality Certificate” for Apple’s M2 MacBook Air, indicating that, similar to the M1 MacBook Air, the M2 version will also be produced in China. Beyond BYD and Wingtec, Chinese companies like Luxshare Precision, GoerTek, and Tianma Microelectronics have made inroads into the Apple supply chain through various product avenues.

However, whether BYD’s acquisition of Jabil will significantly impact the volume of Apple orders for Taiwanese manufacturers remains to be observed. An industry insider shared insights with TechNews, suggesting that Jabil’s decision to sell its operations in Chengdu and Wuxi to BYD might be due to the increasing number of American companies relocating from China due to U.S.-China tensions.

Furthermore, there are rumors that Jabil is contemplating a corporate transformation, although the exact nature of this transformation remains unknown. Selling a portion of its business could potentially mark the first step in this transformation journey.

Additionally, while BYD is acquiring Jabil’s business in Chengdu and Wuxi for nearly $2.2 billion, this amount might not be substantial from a corporate perspective, implying that Jabil’s previous capacity offered might be considerably smaller than that of Taiwanese manufacturers.

The industry source also posits that BYD’s acquisition of Jabil’s business in China might simply signify BYD’s intention to venture into institutional component manufacturing, without necessarily indicating a shift towards producing Apple-related products in the end.

(Photo credit: BYD)

According to a report from Taiwan’s Commercial Times, the iPhone 15 series is slated to make its debut in mid-September. The closure of Foxconn’s Zhengzhou factory at the end of 2022, which caused disruptions in the shipment of iPhone 14, prompted Apple to not only divert orders to Pegatron but also actively support the Chinese factory Luxshare to become the second-largest assembly plant. It is projected that Luxshare will account for 28% of the iPhone 15 shipments.

With Apple’s backing, Luxshare has swiftly emerged as a potential rival to Foxconn in the assembly sector. Issues such as supply instability and employee departures arising from the closed management of Foxconn’s Zhengzhou facility led Apple to promptly shift 4 million iPhone 14 orders to Pegatron and shift their focus onto Luxshare. This expansion extended beyond mainland China, reaching into India as well.

The Commercial Times report mentioned that for the iPhone 15 series, Foxconn is expected to retain its position as the largest assembly factory. Analysts estimate that Foxconn will be responsible for around 58% of the production output. However, Luxshare is set to take on the assembly of the two lower-tier models, as well as a segment of assembly for the highest-tier model. This accomplishment propels Luxshare to become the second-largest assembly factory for the iPhone 15, holding a share of 28%. Additionally, Pegatron is expected to hold a share of approximately 13%, positioning itself as the third-largest assembly factory.

According to research conducted by TrendForce, Luxshare’s manufacturing proportion for the iPhone 15 and iPhone 15 Plus this year is expected to reach 29% and 65%, respectively. Furthermore, Luxshare has secured a considerable 35% of the manufacturing proportion for the highest-tier iPhone 15 Pro Max.

The report from the Commercial Times also highlights that Luxshare has rapidly evolved into a pivotal player in Apple’s supply chain. In addition to handling the assembly of the iPhone 15, Luxshare has taken on the entire assembly of Apple’s heavyweight new product, the Vision Pro, this year. Moreover, Luxshare has secured a remarkable 40% of the shipment volume for the Apple Watch, establishing itself as the world’s leading outsourced manufacturer of smartwatches.

According to Taiwan’s TechNews, Foxconn’s founder, Terry Gou, announced his candidacy for the 2024 presidential election. Responding to questions about how Foxconn is navigating pressure over its China-based investments, Gou emphasized that he has identified a successor and, if the Chinese Communist Party were to confiscate Foxconn’s assets due to disobedience, he would respond with a resolute “Yes! Do It!” Following his remarks, Foxconn swiftly issued a statement emphasizing the company’s collective ownership by global investors. Gou, who relinquished his managerial role four years ago, is not involved in current management.

The statement from Foxconn noted that this year marks the company’s 49th year of existence, during which it’s been contemplating the next 50 years. The group is committed to ongoing transformation and sustainable development. Foxconn’s core values of sharing, collaboration, and mutual prosperity are aimed at leveraging its global stature to contribute to the economic growth and quality job opportunities in the 24 regions it operates in. This commitment to enhancing human welfare, both in the past and the future, remains Foxconn’s primary contribution.

Foxconn is steadfast in promoting corporate governance, operational independence (with a majority of independent directors on its board), and diversity (including female directors, executives, and employees), aspiring to set a benchmark for professional management. While not participating in political activities, Foxconn is dedicated to advancing sustainable operations, ensuring the company’s enduring vitality. This ethos, part of Foxconn’s DNA, drives continuous progress and improvement. Over nearly five decades, it has brought transformative technology products to people’s lives. Looking ahead to the next 50 years, Foxconn seeks to innovate its operational model, offering products that revolutionize the way people live and move.

(Photo credit: Foxconn)