Taiwanese contract manufacturer Foxconn (2317.TW) has won an order to make AirPods for Apple Inc (AAPL.O) and plans to build a factory in India to produce the wireless earphones, two people with direct knowledge of the matter told Reuters.

The deal will see Foxconn, the world's largest contract electronics maker and assembler of around 70% of all iPhones, become an AirPod supplier for the first time and underlines efforts by the key Apple supplier to further diversify production away from China. AirPods are currently made by a range of Chinese suppliers.

One source said Foxconn will invest more than $200 million in the new India AirPod plant in the southern Indian state of Telangana. It wasn't immediately clear how much the AirPod order would be worth.

The person, who requested anonymity as the matter was not public yet, said Foxconn officials had debated internally for months about whether to assemble AirPods due to relatively lower profit margins on making the device, but ultimately opted to go ahead with the deal to "reinforce engagement" with Apple.

"That way, we are more likely to get orders for their new products," the person said.

The decision to set up production in India was requested by Apple, according to the source.

Foxconn vies with Taiwanese rivals such as Wistron Corp (3231.TW) and Pegatron Corp (4938.TW) to win more orders from Apple, the world's most valuable company.

A subsidiary, Foxconn Interconnect Technology Ltd <6088.HK>, plans to start construction of a manufacturing facility in Telangana in the second half of this year and begin production by the end of 2024 at the earliest, the person said.

Shares in the Foxconn unit jumped nearly 9% after Reuters first reported the news, reversing an earlier loss of 2.2%. Shares in Foxconn itself traded up 0.5%, while the Taipei benchmark (.TWII) was down 1.1%.

A second person with direct knowledge of the matter, who also declined to be identified as the matter was not yet public, said the Foxconn subsidiary will make AirPods in India without providing further details.

Analysts have previously said Apple has asked suppliers including Foxconn to make AirPods in India, but details such as the size of investment, timeline and which suppliers have manufacturing plans in the country have not been disclosed.

Foxconn declined to comment. Apple did not immediately respond to a request for comment. Apple and its key suppliers have been shifting production away from China, where strict COVID-19 curbs disrupted Foxconn's biggest iPhone factory last year. They are also seeking to avoid a potential hit to business from mounting Sino-U.S. trade friction.

Foxconn said on Wednesday it would ramp up investment outside China to meet customer demand and lower its reliance on China for production.

It was not immediately clear whether Foxconn's production plan would have impact on current AirPod suppliers, including Luxshare Precision Industry (002475.SZ).

Luxshare did not immediately reply to a Reuters' request for comment.

Goertek Inc (002241.SZ), another supplier, said in November an overseas client had asked it to suspend assembly work for a smart acoustic product, which analysts at the time identified as AirPods Pro 2, and the suspension would hit revenue by up to 3.3 billion yuan ($480 million).

Goertek did not respond to a request for comment.

By: DocMemory
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