Taiwan losing its grip on iPhone supply chain

PUBLISHED : Monday, 29 September, 2014, 3:58am
UPDATED : Monday, 29 September, 2014, 3:58am

Production of the hot-selling iPhone 6 is bringing business to a number of Taiwanese technology firms and boosting factory orders on the mainland, although supplier competition and sourcing changes at Apple have taken a bite out of the region's dependence on the popular handsets.

Apple has contracted Taiwanese tech giant Hon Hai Precision to make all its iPhone 6 Plus handsets and 70 per cent of basic iPhone 6 orders, analysts say. Pegatron, based in Taipei, will assemble the other 30 per cent, the Market Intelligence and Consulting Institute in Taiwan estimates.

"Most of the worldwide assembly for the iPhone 6 range will take place in China, because that is where the lowest costs and biggest factories are located," said Neil Mawston, global wireless practice executive director at Strategy Analytics in Britain.

But as Apple changes specs from earlier iPhone models and has the pick from a bigger field of suppliers worldwide, mainland and Taiwanese companies are getting fewer orders compared to older iPhones.

"The components for the iPhone 6 portfolio come from a very globalised supply chain," Mawston said.

Taiwan will pocket just US$25 to US$30 from the total US$245 to US$255 manufacturing bill of materials from each iPhone 6 handset, according to the Market Intelligence and Consulting Institute.

Taiwanese firms, many of which send orders to the mainland for manufacturing, are receiving less from the iPhone 6 compared to earlier models largely because supply chain competition has pushed prices lower.

Parts cost 10 per cent less on average for the iPhone 6 versus earlier models, technology analyst Wilson Miao said. "The biggest difference is that the profits aren't as high as before. Every unit costs less," he said.

Apple is now buying display panels from Japanese firms JDI and Sharp, as well as LG Display in South Korea because, unlike previous models, the iPhone 6 does not use the "out-cell" technology offered by Taiwanese vendors, market research firm TrendForce said.

"Taiwan manufacturers are virtually absent from the iPhone supply chain at this point," it said.

Jabil Circuit in the US is making cases for the new handsets, according to US news reports.

American consumer electronics companies such as Apple increasingly want products assembled in the home market for branding purposes and to take advantage of US government incentives for bringing manufacturing jobs back from overseas to boost the economy. Apple says it has 60 suppliers in the US.

In contrast, it has 42 suppliers in Taiwan and 349 on the mainland across all product types.

Taiwanese tech firms will now turn towards Apple's smartphone competitors such as Samsung and Sony for new business as iPhone proceeds dwindle, said analysts.