Apple Pushing Supply Chain Load From Foxconn To Pegatron, Says Sources

As we noted yesterday, Apple's Tim Cook hinted that variations of the iPhone, such as versions that fall at different price points, could be in the company's future. Rumors of a low-cost iPhone have been circulating for months now, with at one point Apple's Phil Schiller saying such a device will never have a future in the company's products. Despite that, the rumor is still alive, and today sources told the Wall Street Journal that a low-cost iPhone is expected to be made available later this year.

The alleged cheaper iPhone will primarily be assembled by Pegatron Corporation, with Apple shifting some more of its supply chain load to the lesser-known Chinese company. Pegatron has already dabbled in Apple manufacturing, having produced some iPhones in 2011, as well as some iPad mini tablets in 2012 and even iBooks in days gone by. Such a shift from heavily relying on Foxconn, which has long been a staple of Apple, represents risk diversification.

Foxconn ran into some problems late last year with the iPhone 5, having experienced problems meeting demand for the smartphone, with customers having to wait weeks before they received the device. Such issues make efforts in risk diversification an obvious step for the company, but the sources who provided the information said that growing competition from Samsung and others has also prompted the change. 

Others reasons were also cited, including less financial incentive to stick with Foxconn in light of work condition improvements that are cutting into the overall financial picture. On the flip side, Pegatron is willing to manufacture for Apple with less profit that Foxconn requires. Says sources, Apple and Foxconn are also taking on a bit of an antagonistic stance with each other, with the fruit-logo'd company finding Foxconn harder to control and Foxconn finding Apple's products increasingly harder to assemble.

That doesn't mean Foxconn head Terry Gou and Apple's Tim Cook aren't still on good terms, says the sources, with both still having a "strong relationship." Such reported changes are the result of necessary business conditions, although nothing official has been confirmed, with neither Apple, Foxconn, nor Pegatron willing to comment on the matter.

SOURCE: WSJ