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Mobile Devices

Pegatron Staffs Up: Is a Low-Cost iPhone on the Way?

13 May 2013

Suppliers to Apple Inc. are notoriously closed-mouth about their relationship with the U.S. consumer giant. So even rumors about Apple’s business relationships can create a stir.

For example, Taiwan-based Pegatron Corp., one of Apple’s assembly partners for its iPhone and iPad, has announced it will increase its employee base in China by 40 percent. The announcement has fueled speculation that a bargain iPhone is on the way.

Pegatron currently employs 100,000 workers. Although it is dwarfed by one of Apple’s other assembly partners, Hon Hai Precision Industry Co. Ltd., Pegatron has challenged Hon Hai, also known as Foxconn, in contract price wars in the past, according to Reuters. Analysts believe a cheaper iPhone would expand Apple’s sales in China and India. Pegatron’s hiring announcement coincides with Apple’s expected launch of a budget iPhone.

It also coincides with Hon Hai’s intentions to reduce its reliance on Apple, said Thomas Dinges, Senior Principal Analyst, Outsourced Manufacturing Intelligence Service, IHS. “Pegatron has been Apple's number two for more than a year now and Hon Hai has been quite vocal about reducing their dependence on Apple,” he said.

“Pegatron is the primary assembler on the iPhone 4s and the iPad Mini. So from a revenue standpoint, they have good products to be involved with. Also, none of the other folks have interest in much of the Apple assembly business because there isn't much lift to margins,” said Dinges.

If the announcements are more than a coincidence, Pegatron could be trading thin short-term profit margins for long-term Apple contracts. Apple is regularly recognized for leveraging its supply chain relationships, although its dominance is a mixed bag for suppliers.

Case in point is LG Display, a leading display supplier to Apple. LG Display’s stock was recently dragged down by reports of slowing demand for Apple products. Outside of its Apple business, LG Display is investing in and making headway in leading-edge display technologies and came out with the first large-sized OLED TV earlier this year. The company returned to profitability in the second quarter of last year after facing several business challenges, including fines in the European Union for price-fixing.

Pegatron recently announced an 81 percent surge in net profit in the first quarter from a year earlier to T$2.31 billion ($78.59 million), while its operating margin improved to 0.8 percent from 0.3 percent in the previous quarter, according to Reuters.



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