According to Taiwan Economic News, Taiwan-based Pegatron has outbid Foxconn for production of Apple's next-gen iPad (or "iPad 3" until/unless Steve Jobs gives it a better name). While other news outlets such as BGR are reporting this as an exclusive contract (meaning Foxconn would no longer produce the iPad 3), our interpretation differs. Instead, it seems Apple is diversifying production of the iPad 3 across both Foxconn and Pegatron.
"Hon Hai is likely to turn Apple's another contract order for iPad 3 manufacturing over the Taiwanese counterpart, as the customer has considered looking for a second iPad supplier to reduce over-dependence on Hon Hai," the Taiwanese report indicates (emphasis ours). The wording here seems to point to two factories producing the iPad 3, not just one.
Spreading iPad 3 production over two contractors makes more sense than shutting Foxconn out completely. Having two contractors manufacturing the iPad 3 should theoretically go a long way toward lightening the supply constraints that have plagued the iPad line from the beginning. Apple execs have repeatedly said that iPads are being sold "as fast as we can make them," and the only thing holding the iPad back from raking in even more profits for Apple has been Foxconn's inability to churn them out fast enough to satisfy demand.
Rather than abandoning Foxconn, adding Pegatron to the mix means iPad production should increase enough to satisfy the great demand for the device. Earlier reports indicated Apple was indeed looking for a second supplier for iPad 3 units, not an outright replacement for Foxconn. A later report indicated Hon Hai (owner of Foxconn) said it would be able to handle production of the iPad 3 all by itself, but if the latest report from Taiwan Economic News is accurate, Apple apparently disagrees.