Apple Shifts Supply Chain Away From Foxconn to Pegatron

It was a famous partnership between two outsize personalities— Steve Jobs, Apple Inc.'s AAPL +0.80% intense and mercurial co-founder, and Terry Gou, the Taiwanese manufacturer's equally demanding chairman.

But under current Chief Executive Tim Cook, Apple is dividing its weight more equally with a relatively unknown supplier, giving the technology giant a greater supply-chain balance.
Earlier
As Apple Feels Bite, Hon Hai Looks to Diversify (3/27/2013)

Pegatron Corp., 4938.TW +0.93% named after the flying horse Pegasus, will be the primary assembler of a low-cost iPhone expected to be offered later this year. Foxconn's smaller rival across town became a minor producer of iPhones in 2011 and began making iPad Mini tablet computers last year. Pegatron's rise means an end to the monopoly that Foxconn Technology Group 2354.TW -1.48% —the trade name for Hon Hai Precision Industry Co., 2317.TW -1.40% the world's largest electronics contract manufacturer—has held over the production of Apple's mobile products.

People familiar with the matter point to strategic reasons for the shift: risk diversification after Foxconn's manufacturing glitches last year with the iPhone 5 that resulted in scratches on the metal casings, and Apple's decision to expand its product lines amid growing competition from Samsung Electronics Co. 005930.SE +2.12% and others.


Pegatron also has been willing to accept thinner profits as it courts Apple's business, analysts said. The company declined to comment about its pricing.

Apple declined to comment.


Foxconn's cost advantages from scale have waned as it works to improve factory conditions after a spate of high-profile worker suicides and accidents in recent years. Although Pegatron briefly caught the public eye in 2011 due to a factory explosion that injured dozens of workers, the smaller company has largely escaped the laserlike spotlight that has forced Foxconn to increase wages and make changes to its labor practices.