Luxshare

"How Wang won that order has become part of Apple lore. The story is that procurement head Tony Blevins struck a deal for Luxshare to assemble the earbuds at cost—no margin at all. But unlike so many similar stories, this was less about Blevins’s ruthlessness and more about Grace Wang’s craftiness. She agreed to do the work for free on one condition: that Tim Cook visit her factory and be photographed on the assembly line. It’s difficult to confirm the margins really were zero, but on that day in December when Cook visited Luxshare’s factory northwest of Shanghai, he offered toothy grins and praised all that he saw. “This is an extraordinary example of a Chinese dream being realized,” Cook said. He even took to Weibo, China’s answer to Twitter, to proclaim that Luxshare was making AirPods with “phenomenal precision and care,” and that “Chairman Grace Wang has built a culture of excellence that starts with people. We are thrilled to work with them!”"

"For years, Cupertino had flown engineers into China by the planeload to oversee the ramping up of new products. Prior to Covid, Apple was booking “50 business class seats daily” from San Francisco to Shanghai, according to an accidental leak from United Airlines revealing Apple as its largest corporate customer. Suddenly that wasn’t possible. But every product Apple made had an in-region support team, and they were forced to step up their game. Apple’s partners, too—from Foxconn, Luxshare, and BYD to deeper layers in the supply chain—knew what they were doing. Apple had trained their engineers and, at times, orchestrated mini-crises to let the schedule slip and see how the suppliers would react. “I intentionally let one whole build just basically crater,” says a former engineering manager, describing an event before the pandemic. “It was an example for them to learn what it takes.” It was like the old parable about teaching a man to fish. “All of these suppliers, or a lot of them, have gotten to the point where they understand what it takes to develop an Apple product,” this person says. “And so when we stepped away, there’s a machine that’s already enabled, that knows what it takes to build a product.”"

"Besides Luxshare, the other three major indigenous contract manufactures making Apple products are BYD Electronic, a major supplier of hardware enclosures and assembler of iPads; Goertek, a maker of AirPods and AirPods Pro; and Wingtech, which manufacturers Mac Mini desktops and MacBooks. These groups collectively reported $6 billion of total revenue in 2015; by 2020 their revenues had quadrupled to $25 billion, and in 2025 their sales are expected to exceed $52 billion. Apple has been instrumental to their success, shifting orders from Taiwanese leaders Foxconn, Wistron, Pegatron, and Quanta. As David Collins, an Asia-based manufacturing consultant, said of the Red Supply Chain in late 2020: “Foxconn’s share price is down roughly 50% from two years ago. They see blood in the water.”"

"Wang (pronounced “Wong”) had two major audiences in mind. One was the capital markets. Wang and her older brother founded the company in 2004 and hold at least 39 percent of its shares. Over the prior ten years, Luxshare had earned $782 million of net profit. Its owners stood to make far more in the stock market than from low margins on final assembly. By turning Cook’s visit into a media event, Wang delivered a message to investors: Luxshare was on the up-and-up, and its rise would come at the expense of Foxconn. On the day Cook visited, Luxshare was worth $12 billion—validating how successful it had become from supplying components to Apple for nearly a decade. Still, that was only one-fifth of Foxconn’s $57 billion valuation. Within two and a half years, Luxshare’s market value would soar to $38 billion, overtaking Foxconn’s own dented market value at a time when the Taiwanese group was bringing in thirteen times more revenue. Any financial analysis would struggle to reconcile how that could be. The two companies were in the same low-margin business, using the same techniques, and servicing similar clients. But Chinese investors know their own country’s politics well, and they saw the writing on the wall. Foxconn, too, understood the challenge, and in 2019 it set up a task force to study its Chinese rival to understand its technology, expansion plans, hiring strategy, and whether the company was supported by any Chinese government entity."

"But the “strictly business” narrative fails to grasp the nexus between supply chains and local politics. As Taiwanese scholar Wu Jieh-min argues, the role of the Chinese state “is exceedingly understated” in most research. The “underpoliticized” narrative, he writes, overlooks how “the Chinese government invested capital and selectively nurtured” certain industries, including telecommunications and cellphones. Such help allowed local suppliers to purchase their way into Apple’s supply chain. Luxshare, for instance, got into iPhone assembly after buying two China-based subsidiaries of Wistron, a Taiwanese rival, for $472 million, in July 2020. The following year, BYD Electronic spent $2.2 billion to purchase the Chengdu- and Wuxi-based electronics manufacturing facilities of Jabil, a US contract manufacturer that had been supplying Apple for fifteen years. And with cheap access to capital, they could acquire workers from Foxconn and other suppliers who already had Apple experience. These tactics have been so successful that they’ve helped to drive a shift of geopolitical proportions. According to Apple insiders, 100 percent of final assembly, test, and pack out of Apple hardware was performed by Taiwanese companies in 2012; in the years since, that percentage has fallen below 50 percent—reflecting a staggering shift toward Chinese suppliers that has made Apple hugely popular in government circles."

"The Apple CEO’s visit was a stroke of brilliance on the part of Wang, described in the puff piece as someone who knows “the various Apple products like the back of her hand.” What she understood is that profits from the deal hardly mattered relative to the public prestige of working with Apple. Cupertino has long been famously secretive about its supply chain operations; companies can face penalties for even mentioning that they make goods for the tech giant. But Cupertino’s desire to enhance its narrative in China presented an opportunity. Wang orchestrated an event that elevated the perception of Luxshare from “one of many suppliers” to a real partner. As the website article proclaimed: “Birds of a feather flock together.”"