Luxshare’s wins with Apple make it Foxconn’s biggest challenger

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When Apple unveiled its Vision Pro mixed-reality headset to the world’s media in June, few were aware of the significant role played by a little-known contract manufacturer in China in creating the revolutionary device.

Shenzhen-based Luxshare Precision Industry has won favour and increasing business with the iPhone maker in part by being prepared to test “crazy” ideas in its factories, according to an Apple supply chain employee.

It is the sole assembler of the Vision Pro and has been seeing it through the initial manufacturing problems of integrating its complex electronics and the setbacks of too-frequent flaws in a crucial component — its micro-OLED displays. Apple has been forced to scale back production expectations for next year, with two people close to Apple and Luxshare saying it was preparing to make fewer than 400,000 units in 2024.

Still, the company and its chief have come a long way to be now manufacturing the “most complex consumer device anyone has ever made”, according to analysts, and taking on Taiwan’s Foxconn, the world’s biggest contract electronics manufacturer.

When Foxconn started out in China with the opening of a new factory in Shenzhen in 1988, 21-year-old Grace Wang was one of the first migrant workers to be employed on its production lines. Wang displayed enough ingenuity and skills to earn a quick promotion to manager, as her employer began a decades-long dominance over the making of tech gadgets.

Thirty-five years on, the factory girl is now chair of her own contract electronics maker, after co-founding and building up Luxshare to be Foxconn’s most serious challenger.

Working its way up from being a subcontractor supplying connectors in 1999, Luxshare grew to become a public company, listing in the southern city of Shenzhen in 2010 and selling directly to Apple from 2011. Revenues have surged from Rmb2.5bn ($350mn) in 2011 to Rmb214bn last year.

Wang has been instrumental in its rise, say those who have worked with her. “She’s the hero behind Luxshare, learning a lot from Foxconn about factory management and business expansion,” said one longtime employee who did not wish to be named.

“She is like a big sister or a mum in day-to-day management — attentive and strong.”

While Foxconn is best known as the maker of the iPhone, Luxshare has also been steadily expanding its business with Apple, becoming an important partner and alternative supplier of services. While revenues and profits remain far below Foxconn’s level, its high-growth profile led to its market capitalisation overtaking its rival’s at one point in early 2021.

Apple’s high opinion of its capabilities can be measured by the level of difficulty in the assignments awarded — from setting up factories outside China as geopolitical tensions increase to producing higher-end phones.

Luxshare first produced simple connectors for the iPhone and MacBook laptop through one of its acquisitions, before extending production to critical components in other Apple products, including AirPods, Apple Watch, and then the iPhone. In 2022, Luxshare generated more than 70 per cent of its revenues from Apple, compared with a proportion of less than 50 per cent at Foxconn, according to annual reports and analysts’ interpretations.

Apple’s strict requirements for its suppliers tend to boost their credentials with other clients. Luxshare was crowned “gold supplier” by Huawei in 2018.

Industry experts say Luxshare’s rapid rise has been helped by Apple chief executive Tim Cook’s enthusiasm for the Chinese company, whose facilities he has visited. It has also benefited from being selected to help Apple’s efforts to diversify its supply chain beyond China.

Analyst Tony Zhang from CLSA says this represents a challenge, with the need to adapt from centralised production to decentralised management of factories worldwide and to train local workers in different territories.

One such market is India, where Luxshare established an office in 2019 and bought two well-established production plants in Chennai from the former mobile-phone maker Nokia, and Motorola. It has also applied for permission to build a factory in India with a domestic partner, according to people close to the company and Indian government officials.

But it has been cautious on expansion, with Wang hinting at an event in February that the supply chain in India was not mature enough. Eddie Han, an analyst at Isaiah Research, says strained relations between China and India may also be limiting Luxshare’s business development. The company said in May it would “only invest [in India] with sufficient guarantees” for the business environment.

Instead, Vietnam has emerged as a better bet, with a similar culture to China and smoother transportation links. Wang said in February that Vietnam was “the best option” for manufacturing relocation.

The company has been building plants there since 2016 and has already started to migrate Apple production work. Luxshare’s management team said in April that the Vietnam plants were focused on making mature products, while the more challenging tasks, such as mobile phones and new product assembly, were still being carried out in China.

Next for Luxshare is the iPhone 15 series, which will begin production in China in August ahead of its official launch event. The company has received a record share of Apple orders to assemble the new version of the smartphone, according to two people close to Apple and Luxshare. It will also assemble premium models for the first time, breaking Foxconn’s stranglehold on producing the iPhone Pro series, the Financial Times has reported.

Luxshare’s ability to produce enough qualified handsets “quickly and efficiently” will determine its success in gaining a larger share of smartphone production, said Ivan Lam, a senior analyst at Counterpoint.

Offering lower prices and greater flexibility has made the company an attractive option for Apple, which is considering giving it an even more significant role in producing the iPhone 16 series, dependent on performance in delivering the 15, the two people said.

Wang will be the one pushing the company to maintain its standards and prove itself as a supplier that can continue to rival Foxconn on quality and reliability.

“One must be a handsome bird in order to fly with the phoenix,” she has often said of the relationship with Apple, citing an old Chinese proverb.