IPhone maker Pegatron to take over casing unit to fight Luxshare

(Bloomberg)—iPhone assembler Pegatron Corp. is taking over Casetek Holdings Ltd., strengthening its position against rising Chinese rival Luxshare Precision Industry Co.

Taiwan’s Pegatron, which along with larger competitor Hon Hai Precision Industry Co. makes most of the world’s iPhones, said in a statement it will acquire the rest of the device casings maker it doesn’t own, then take private a unit valued at about $1 billion.

Pegatron and Hon Hai are preparing for intensified competition from Luxshare and potentially other mainland rivals, as Beijing fosters a domestic supply chain in response to growing U.S. sanctions. The Shenzhen-based Luxshare is poised to become the first locally-based iPhone assembler after it sealed a deal in July to acquire Wistron Corp.’s Apple production plant.

“Pegatron is trying to bolster its component business to defend itself against the rise of Luxshare,” said GF Securities analyst Jeff Pu. “It may streamline some overlapping business with Casetek.”

Foxconn is adopting a similar strategy in seeking to boost its component business to fend off competitors, Chairman Young Liu said during an earnings conference on Wednesday. A key supplier to Apple Inc. and a dozen other tech giants, he said Foxconn plans to split its supply chain to separately serve the Chinese market and the U.S., declaring that China’s time as factory to the world is finished.

The Chinese government is offering benefits to entice domestic companies to build a homegrown supply chain and non-Chinese firms may be adversely affected in the near future, Hon Hai’s Hong Kong-listed subsidiary FIH Mobile warned in its earnings release this month.

To reduce its Chinese exposure in the midst of a trade war, Pegatron has set up manufacturing facilities in Indonesia’s Batam along with a subsidiary in India.

While Pegatron’s market position is seen as threatened by Luxshare, the Taiwanese company also owns a 0.57% stake in the Chinese supplier, opening up the possibility for a future alliance.