Wise Apple Reduces Dependence on These Two Major Suppliers

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Is Apple (NASDAQ:AAPL) taking steps to further diversify its supply chain by taking on new manufacturers? According to a note acquired by Apple Insider from KGI Securities analyst Ming-Chi Kuo, Apple is looking to expand its manufacturing base beyond its two major suppliers — Foxconn and Pegatron.

Kuo believes that the new suppliers may include Taiwan-based manufacturers Compal Communications and Wistron. Compal Communications has previously made phones for Lenovo, Nokia (NYSE:NOK), and Sony (NYSE:SNE). Wistron is a supplier of enhanced messaging services to BlackBerry (NASDAQ:BBRY).

Inventec Appliances, which is already an established supply source for Apple’s iPod, is also expected to take on additional Apple contracts. By reducing its dependence on Foxconn and Pegatron, Apple is mitigating the inherent risk of relying on a few major suppliers for its products. Last year, Foxconn was accused of shipping some iPhone 5 units with scratches on them.

A decrease in contracts from Apple could negatively impact Foxconn and Pegatron. Foxconn, also known as Hon Hai Precision Industry, gets approximately 60 to 70 percent of its revenue from Apple, reports Reuters.

Pegatron is believed to be a major supplier of Apple’s rumored budget iPhone, or “iPhone Lite.” According to a China Times report via the Japanese blog Mac Otakara last month, Pegatron CEO T. H. Tung indicated that his company was involved in the production of this new low-cost iPhone.

“If Hon Hai and Pegatron struggle to increase new iOS orders or high-end product exposure, we think their days of rapid growth, driven by Apple, could be at an end,” wrote Kuo. Here’s how Apple has traded so far today.


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