Apple Sends Increasing Component Orders to Pegatron; Snubs Foxconn

Hon Hai Precision Industry Co. Ltd (better known as Foxconn) has been Apple’s go-to electronics manufacturer for devices like iPhones and iPads, but there’s a new player in town that seems to be snatching some orders from the tech giant.

Pegatron, a Taiwanese manufacturer, already makes older iPhone models for Apple (the iPhone 4 and iPhone 4S) and even the iPad mini, but rumor has it that Apple is sending more orders toward Pegatron’s way as Foxconn is struggling to grow.

Pegatron, which is only a quarter of Hon Hai’s size (by revenue), recently announced that it will increase its number of workers in China by 40 percent in the second half of this year. Many believe it will be responsible for making a cheaper version of the iPhone. 

Pegatron could continue to push Hon Hai aside when it comes to Apple manufacturing because it offers competitive pricing. Long term, Pegatron could offer more components and catch up on margins. 

Foxconn receives about 60 to 70 percent of its revenue from making Apple’s gadgets. However, as Samsung continues to grow and its Android-powered devices become more popular, Foxconn has stumbled upon decreasing margins. Also to blame for lower margins is rising labor costs after Foxconn got in trouble for its poor working conditions and low pay. 

The proof is in Hon Hai’s first quarter earnings for this year. Hon Hai posted sales earnings of T$808.87 billion ($26.96 billion USD) for the quarter ended March 2013. This was a drop from T$988.34 billion in Q4 2012 and a further decline from T$1 trillion in Q1 2012. 

Apple, while sitting on $145 billion in cash, has seen better quarters as well. For Q2 2013 that ended March 30, Apple posted a net profit of $9.5 billion ($10.09 per diluted share). However, profit was down 18 percent compared to the same period last year; this was Apple’s first year-over-year profit decline in nearly 10 years. Revenue came in at $43.6 billion, which was a boost from $39.2 billion in the year-ago quarter. 

Analysts expected around $10.07 per share on revenue of $42.5 billion.