As Apple Feels Bite, Hon Hai Looks to Diversify
TAIPEI—Hon Hai Precision Industry Co. has made a fortune over the years assembling iPhones and iPads for Apple Inc. But now that competition is biting into Apple's market share, the Taiwanese contract manufacturer is feeling the pain too.
Context & Ripple Effects
Hon Hai has been Apple-centric for most of a decade: it won its first Apple handset and notebook orders back in 2006, and as recently as June 2012 was publicly predicting the iPhone 5 would put Samsung's Galaxy S III to shame — an unusually loud bet on its biggest customer. With confirmed reporting that competition is now biting into Apple's iPhone and iPad market share, that concentration has flipped from asset to liability.
The Wall Street Journal piece traveled widely on pickup — Engadget, Quartz, MacRumors, AppleInsider and others ran it the same day — and Engadget's framing surfaced the concrete hedge already underway: a Foxconn partnership with Mozilla on Firefox OS devices, potentially shown off within days. The story is less about one bad quarter than about a contract manufacturer repositioning its client base.
First-order effects
- Falling Apple volumes flow straight through to Hon Hai's assembly lines, since iPhones and iPads have been the fortune-making core of its business since at least 2006.
- The Mozilla/Firefox OS tie-up gives Hon Hai a second, non-Apple device pipeline to fill, softening the revenue hit from Apple's shrinking share.
Second-order effects
- Mozilla gains what it lacks most against Android and iOS — a manufacturing heavyweight able to build Firefox OS handsets at scale — making an obscure OS commercially viable.
- Rival Taiwanese assemblers competing for Apple work face a customer actively spreading orders, while component suppliers tied to Apple volumes feel the same demand squeeze Hon Hai does.
Third-order effects
- If single-customer concentration keeps punishing scale assemblers, 'diversify beyond your anchor client' becomes standard strategy across Taiwanese contract manufacturing, with firms choosing which ecosystems to back rather than merely which brands to serve.
- A pattern of assemblers hedging into emerging platforms could give upstart operating systems access to top-tier production capacity they could never buy alone, lowering the entry barrier in mobile hardware.
The trend: Contract manufacturers whose fortunes ride on one dominant brand are beginning to hedge by building devices for challenger platforms, with customer concentration replacing labor cost as the sector's defining risk.