Chinese electronics maker Luxshare is attempting to break into iPhone manufacturing ahead of schedule, a move backed by Apple and aimed at challenging Taiwanese rival Foxconn, the world's leading assembler of Apple's iconic devices.

Luxshare has dispatched a group of employees to study iPhone production at a Chinese plant it is in the process of buying from Wistron, a smaller Taiwanese assembler, sources familiar with the matter told Nikkei Asia. The move is unusual because the acquisition is not yet final, and Apple rarely if ever allows outside employees to visit suppliers' production sites -- especially during peak iPhone production season.

Also surprising is that the Luxshare employees are studying production of the latest iPhone 12 mini, multiple sources said. Originally, the Chinese company was expected to begin producing older models, and not until next year.

The key assembler of Apple's AirPods wireless earphones, Luxshare bought Wistron's iPhone assembly plant in Kunshan, China, for 3.3 billion yuan ($499 million) in July to strengthen its ties with Apple and challenge Foxconn. The transaction is expected to be completed by the end of this year.

The plant is in charge of roughly 20% of total orders for the iPhone 12 mini, two people with direct knowledge of the matter said.

"Luxshare is working with Wistron in making the latest iPhone 12 mini in Kunshan. [But] its pace for reaching a satisfactory production performance is slow. There's still a lot of room for Luxshare to learn," an executive-level source familiar with the situation said.

The iPhone 12 mini is the smallest and lowest-priced model of the recently released 5G iPhone range.

In the past, companies joining the iPhone assembly business for the first time have started with older models, as the timetable for meeting Apple's rigorous production standards is not as tight. The latest flagship models, by contrast, must be ready to ship in a short period of time to meet holiday-season demand. Luxshare was previously expected to start small-scale production of older iPhone models next year, after the completion of the Wistron deal, and to begin manufacturing on a large scale by 2022, the people said.

Luxshare's move to station staff in the iPhone assembly plant before of the deal has closed is a sign of how quickly Apple hopes the Chinese company can get up to speed and begin production. No suppliers or other visitors are allowed to visit Apple's production lines without specific permission from the California-based company, people familiar with the matter said.

Luxshare is attempting to become just the fourth iPhone assembler alongside Foxconn, Pegatron and Wistron -- and the first based in China. For Apple, increasing the number of assemblers gives it more bargaining power in setting prices and other conditions.

Pegatron, meanwhile, has been threatened with a loss of new orders from Apple after the U.S. company flagged labor violations at its manufacturing campuses in Shanghai and Kunshan. Pegatron said it is taking steps to correct the issue and is confident that its future business will not be affected once those changes are made. Pegatron has orders to make the remaining 80% of iPhone 12 mini handsets, according to people with knowledge of the matter.

Apple's support for Luxshare comes as its sales in China tumbled 29% on the year in the July-September period, though the company is optimistic that its 5G handsets will be well-received there. The iPhone 12 and iPhone 12 Pro started shipping in late October, while the iPhone 12 mini and iPhone 12 Pro Max are scheduled to start shipping this Friday, a month after they were unveiled.

Luxshare, which nurtures ambitions of becoming the Chinese Foxconn, also plays a major role in Beijing's ambition of achieving greater self-reliance amid the U.S.-China tech war. Luxshare is one of the key companies to receive government subsidies, including from Beijing's 147.2 billion yuan fund established in late 2019 to improve the nation's manufacturing capability, Nikkei Asia reported earlier. Company founder and Chairman Grace Wang was invited to join a symposium with entrepreneurs from state-backed, private and foreign companies chaired by Chinese President Xi Jinping in July.

Asked about Luxshare's rise, Foxconn Chairman Young Liu said in August that it is natural to have rivals in a free market, but said his company will continue to enhance its competitiveness. "We know Luxshare is coming to [iPhone assembly] but we will monitor and see," the chairman said.

Apple and Luxshare did not respond to Nikkei Asia's request for comment. Wistron declined to comment.

Contact editor Marcus Ryder (marcusryder@caixin.com)

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