Apple Seeking to Shift iPhone Production to Pegatron to Offset Chinese Qualcomm Ban

[MacRumors]

Apple is reportedly looking to shift production of older iPhones to Taiwanese supplier Pegatron in an effort to avoid losing billions in revenue as a result of its patent dispute with Qualcomm.

Earlier this week, Qualcomm was granted an import ban on the iPhone 6s through iPhone X in China after the court found those devices violated two Qualcomm patents.

However, according to documents seen by Nikkei Asian Review, smartphones produced by Pegatron are exempt from the ban because the Taiwanese supplier paid license fees for the contested software, whereas rival iPhone assemblers Foxconn and Wistron did not.

One of the sources with direct knowledge of the situation said Apple had held initial discussions with Pegatron about whether the Taiwan-based company could take on more iPhone production to make up for the impact of the ban. No decision has yet been taken, however.

[...]

Taking into account a consumer shift to newer models, it is estimated that the order barring production of older iPhone models by Foxconn and Wistron could hit Apple's sales by some $5 billion in 2018 or 3% of total iPhone revenue.

This could be halved to about $2.5 billion if Pegatron is exempted, two sources said. And if Apple later decides to ask Pegatron to step up production, the impact would be even less, the sources added.

Apple has warned that upholding the iPhone ban would cause "truly irreparable harm" to Apple, other companies, and consumers if it is forced to withdraw its devices from the market.

Late on Thursday, Apple said it will release a software update to iPhone users in China early next week that the company says should address the patent-related issues.

Article Link: Apple Seeking to Shift iPhone Production to Pegatron to Offset Chinese Qualcomm Ban

 

[chinito77]

"Apple has warned that upholding the iPhone ban would cause "truly irreparable harm" to their shareholders" There, fixed it for you!

 

[RightMACatU]

Careful... China might decide to arrest and hold Americans working in China on spying charges

 

[thisisnotmyname]

Bold move, likely purposely leaked to put added pressure on China to block the second Qualcomm attempt.

 

[brdeveloper]

There is a Foxconn in Brazil. Thanks to the lower taxes, I could get an iPhone SE 128GB for a similar price compared to US. If Foxconn Brazil produced the iPhone 8 it would be nice.

 

[JPack]

The ultimate middle finger to China is switching from a Chinese producer to a Taiwanese producer (remember, China denies Taiwan exists)

Huh? Do you realize both Foxconn and Pegatron are Taiwanese companies?

Regardless, both manufacture principally in China.

 

[JPack]

Bold move, likely purposely leaked to put added pressure on China to block the second Qualcomm attempt.

Nope. Pegatron is a second rate assembler for Apple. In the past, they’ve been relegated to manufacturing iPhone 5c and iPad mini. This is a hit for both Apple and their consumers who want quality products.

 

[haruhiko]

First the tariffs, then the arrest of Huawei's top executive. Apple is an obvious target for the Chinese to retaliate.

 

[Ricebucket]

The ultimate middle finger to China is switching from a Chinese producer to a Taiwanese producer (remember, China denies Taiwan exists)

This has to be the ultimate misinformed comment.

All of the manufacturers in question are companies from Taiwan. All of them manufactures primarily in mainland China, not on the island of Taiwan. And there is not a problem for these companies to operate in mainland China.

Furthermore, this lawsuit is an American company suing another American company. Why is a middle finger to China even necessary? Especially since the mainland Chinese market is the largest mobile phone market in the world.

Your comment does not make sense whatsoever.
[doublepost=1544802259][/doublepost]Why can't Apple just pay Qualcomm for the lawsuit like Pegatron does? Pegatron will end up passing the costs to Apple anyways for whatever they're paying in royalties.

 

[HacKage]

Apple releasing an update to work around the patent is as big an admission of guilt as you could imagine. Rather than put their hands up though, they appeal and throw warnings around.

 

[jlc1978]

Apple releasing an update to work around the patent is as big an admission of guilt as you could imagine.

Hardly. Even if they believe they will prevail in court they want to limit any damages if they don't. Working around the patent limits the infrigement since the patent in dispute is no longer being used; it alos gives Chian a face saving out to lift the ban without appearing to cave to Apple.

Rather than put their hands up though, they appeal and throw warnings around.

Sure. If China plays tough Apple can as well. There is no reason to surrender if they think they will utimately win.

 

[Starship67]

I’ve had a couple of Pegatron assembled iPhones my current XR is.
The build quality on Pegtron versus Foxconn is far far better.

 

[thisisnotmyname]

Nope. Pegatron is a second rate assembler for Apple. In the past, they’ve been relegated to manufacturing iPhone 5c and iPad mini. This is a hit for both Apple and their consumers who want quality products.

I was referring just to floating the idea, not any potential real move of manufacturing. Meaning that they leaked it themselves as a threat to the Chinese authorities to stop Qualcomm's suit. I don't know anything about the relative strengths of their contract manufacturers.

 

[now i see it]

Maybe Apple isn't the victim and they need to pay what's due. Pay up.
If any "irreparable harm" comes to apple because of this ruling, it's their own fault.

 

[Peepo]

If they release update to workaround patents then why shift production to Pegatron then?

 

[512ke]

If Apple needs to manufacture outside of China, then you will see other countries rapidly develop their manufacturing capability.

 

[alexgowers]

The problem with this situation is that China has more jobs invested with Apple than qualcomm and upholding a ban would be shooting itself in the foot.

The Chinese aren't that stupid its purely a threat.

 

[Ruggy]

Maybe Apple isn't the victim and they need to pay what's due. Pay up.
If any "irreparable harm" comes to apple because of this ruling, it's their own fault.

It's a pretty complicated affair from what I know of it.
They were effectively best friends. Qualcomm paid Apple a small fortune to not use products from the competition (and are now facing a $1.2bn fine for breaking anti-competitivity laws) and they were fairly relaxed about doing things which might infringe each other's patents a little. They weren't too bothered about that sort of thing and they both did it in a reciprocal fashion.
Now, like a couple of neighbours fighting over a fence post, the relationship has deteriorated to the point that they are suing each other over every tiny thing they think they can get leverage on.
This is a big shot from Qualcom over a very small thing (What is it exactly? A patent for resizing images on a touch screen?) and it's taken the fight to a level Apple, quite sensibly don't want to go to. They will be forced to retaliate. But really they both need to talk sensibly and get back to being realistic before they both suffer really deeply.

 

[Newtons Apple]

I wish they would move production of all Apple devices out of China.

 

[Solomani]

Apple should move production away from China and back to Japan or the USA. More expensive, perhaps, but politically more stable investment in the long term.

 

[Tonal]

Apple should move production away from China and back to Japan or the USA. More expensive, perhaps, but politically more stable investment in the long term.

There’s another opinion with absolutely zero business economics. Have you considered how much the already-pricey Apple products would cost if production ever moved to either US or Japan? Average Foxconn wage = under $3/hour. Average US wage for an Apple tech is just under $17/hour. Would you pay over $5000 for an iPhone? If not, do you expect Apple to “absorb” the five-fold increase in assembly costs? Or do you think US/Japan workers would accept wages less than 1/3 what they would flipping burgers at McDonalds?

Having worked at a big box retailer, we always laughed at customers that made bold claims where they want “nothing to do with Chinese made junk” and were prepared to buy Japanese-made laptops. We showed them a certain $2000 made-in-Japan Vaio versus the sub-$1000 Toshiba or HP. They would always “think about it” or pick anything but that Vaio.

 

[pika2000]

smartphones produced by Pegatron are exempt from the ban because the Taiwanese supplier paid license fees for the contested software, whereas rival iPhone assemblers Foxconn and Wistron did not.

Wait, so all of the problem was just because Foxconn didn't pay the license fees?
And why was Apple targeted? I mean if it's the assembler who didn't pay, it means other products made by that assembler are open for the ban as well no? And Foxconn makes a ton of stuff for everyone. Curious.

 

[npmacuser5]

Apple should move production away from China and back to Japan or the USA. More expensive, perhaps, but politically more stable investment in the long term.

That will happen when the real trade problem resolved. Want American made, we all need to pay for it. As long as 90% of the US population purchasing decisions are made on initial cost of All the products they purchase, US manufacturing will Never return. The current solution, force the 90% to pay more by tariffs. The problem with that theory, US manufacturing will take decades to ramp up to what the rest of the world already has in place. Not to mention the costs of doing so. Apple has clearly said the US does not have the means to build their products, both in plants and highly skilled labor. Comes down too, we are addicted to price shopping.