2 Taiwan companies win Apple orders due to defects in China's red supply chain

Apple shifts orders to 2 Taiwan companies due to high defect rate in China's red supply chain

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(CNA photo)

TAIPEI (Taiwan News) — Due to production issues and a high defect rate with a key cog in China's "red supply chain," Apple has transferred orders to Taiwanese manufacturers as it ramps up production of its iPhone 11 and gears up for 5G phones.

Due to problems with production disruptions and low yield rates (high defect rates), Apple has switched orders away from Chinese Printed Circuit Board (PCB) supplier Suzhou Dongshan Precision Manufacturing Co., Ltd, in favor of Taiwan rivals Zhen Ding Technology Co., Ltd. (臻鼎科技) and Flexium Interconnect Inc. (台郡), reported UDN. Suzhou Dongshan is a member company of China's "red supply chain," Chinese technology companies given favorable government treatment to enable them to squeeze out foreign competitors entirely from the production process.

In recent years, China's rapidly rising red supply chain has increasingly robbed Taiwan's manufacturers of Apple's orders. Zhen Ding and Flexium are now leading the counterattack in breaking through the siege of red suppliers with a large-scale order of components from Apple for its newest phones.

As for reports, the two companies will be picking up slack for Apple at Suzhou Dongshan's expense, though neither company has publicly confirmed or denied the Apple orders. Zhen Ding says that it can meet the requirements of any client, while Flexium said it has a positive outlook toward new market demand and anticipates that production in the first quarter of next year will be "a bit busier than usual," according to the report.

Suzhou Dongshan has a large PCB factory in China and held the eighth spot in the worldwide PCB business and third spot in the soft PCB sector in 2018. However, its soft PCB board subsidiary is suffering a production crisis, which led to gaps in its deliveries, affecting Apple's production schedule and prompting the company to seek Taiwanese suppliers, reported UDN.

The increased orders from Apple are expected to improve the bottom line for Zhen Ding in the fourth quarter this year. As orders have increased very rapidly, its medium- and high-level production lines are reaching full capacity, and Flexium has stepped in to help fill the gap.

Zheng Ding's profits have been dramatically higher recently, with its revenue in October hitting NT$16.53 billion. This marked a new high, a monthly increase of 14.7 percent, and a year-on-year increase of 10 percent.

Flexium is also seeing a strong performance with third-quarter profits more than 3.7 times higher and a net profit per share of NT$3.65, exceeding the total in the first half of the year. In the first three quarters of this year, Flexium's net profit per share was NT$4.79, better than the NT$4.50 seen in the same period last year.

Suzhou Dongshan has expanded rapidly through the acquisition of American PCB suppliers, including the purchase of MFLEX in 2016 and Flex Ltd.'s Multek in 2018. The goal of these acquisitions was to expand its control of the supply chain for Apple's iPhone, Apple Watch, and AirPods.

However, as the disruptions in the Chinese company's production process have been made public, Taiwanese companies are leaping in to fill the void. Success by Zhen Ding and Flexium could entice more global brands and pave the way for other Taiwanese suppliers.