Report: Apple picks Pegatron to build low-cost iPhone, not longtime partner Foxconn

The Wall Street Journal is reporting that Taiwanese manufacturer Foxconn, which has been Apple’s biggest and most important manufacturing partner, will see some of its orders from Apple(s aapl) transfered to a competitor in the future. The word is that Apple will be working more closely with Pegatron on the production of future iPhones and iPads.

Pegatron is already an Apple partner — it made some iPhones and the iPad mini — but is set to take on a larger role, according to the report: Apple will be “dividing its weight more equally” among it and Foxconn. And one of the products Pegatron will be making? It “will be the primary assembler of a low-cost iPhone expected to be offered later this year,” says the report.

There has been a steady stream of reports since early this year that Apple is working on a version of the iPhone whose price would make it more accessible to a larger percentage of users who have yet to join the smartphone revolution, mostly in emerging markets.

The reasons for the transition of more iOS device manufacturing to Pegatron, according to the Journal‘s unnamed sources:

  • Reaction to Foxconn’s production troubles with the intricately designed iPhone 5.
  • Apple’s need to expand beyond Foxconn’s current capacity.
  • And perhaps most importantly: Pegatron’s willingness to take lower profits in favor of more business from Apple.

This report jibes with earlier news that Foxconn has been looking for ways to diversify its manufacturing abilities beyond the iPhone and iPad, including televisions.

Pegatron will  be staffing up as a result: it has 100,000 employees now in its home bases of Taiwan and China, but will be increasing its employee headcount in China by 40 percent in the second half of this year. That would coincide with when Apple is expected to release an updated version of the iPhone.