Tag Archives: Foxconn

In Acquisition Mode, Foxconn is Turning Up the Heat

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OEMs, beware: Foxconn is coming for you.

No, not just to buy your components, build your boards and run your logistics. Foxconn is coming for your data, your markets, and your customers.

We’ve been sounding the alarm about this for years. It’s not healthy for your primary supplier to be bigger than the nearly the entire rest of the market. Foxconn, pushing $150 billion in revenues, is as large as the next five EMS/ODMs combined, and more or less as large as numbers 7 through 500.

The 2016 buyout of Sharp could be chalked up to a desire by Foxconn to nab a key technology and supplier to Apple, it’s top customer. The just-announced deal for Belkin, however, coupled with its foray into developing 5G computing and cloud platforms,, suggest a drive to higher margin, branded products. Foxconn’s revenue is larger than almost everyone of its customers, and a new plan to issue $50 billion worth of stock could give it the capital it needs to go on a massive acquisition spree.

OEMs, beware.

The Bourse Identity

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Foxconn’s prospectus to issue a public offering to raise money for its nascent foray in to cloud computing is less revealing for what it proposes than where the offering will take place.

Rather than leverage its newfound admiration in the US (or at least, in a couple pf offices in Washington) by accessing the Nasdaq or NYSE, instead Foxconn is opting for a far less prominent bourse: the Shanghai Exchange.

The reasons are obvious: The Shanghai bourse lacks the capital controls and oversight of the world’s dominant financial exchanges. A company, even one as large as Foxconn, can get away with a lot more, since reporting requirements and level of scrutiny are so less rigorous than in New York or Munich or London. Foxconn’s financial picture is opaque: even reporting on its revenues and profits remains an uncertain undertaking. Staying offshore makes that possible.

Finally, Shanghai is a Chinese exchange and Foxconn is a Chinese company. (Yes, I know it’s based in Taiwan. But look where the bulk of its facilities, workers, investment and attention is. And keep in mind that for many Taiwanese, China is still the motherland.) This latest move underscores that fact.

Trolling NY

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Apparently someone has decided to toy with New York state by assuming the role of “Foxconn US” and trolling a poor soul named Chris Souzzi, who works for Genesee County Economic Development Center.

I’m no fan of Foxconn, and I don’t think there’s a snowball’s chance in hell they put a plant in the Empire State, but stunts like these aren’t funny (even if that’s what’s intended) and simply go too far.

 

 

Sorry Utica, Foxconn Isn’t Coming There

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Or Broome County, NY. Or Harrisburg, PA.

Despite repeated media reports of an impending Foxconn migration, the company will remain what is has been since its founding in 1974: Chinese.

Sure, there will be satellites in key spots elsewhere: Juarez. San Jose. São Paulo. But not the American countryside, and not in big fashion, as is being widely reported by international media.

If Foxconn were to bring one of its Death Star-like campuses to the US, it would buck not just every single manufacturing trend, but outright common sense. Here’s three quick reasons why to expect that won’t happen.

  1. Incentives. Foxconn routinely holds out for hefty discounts on taxes, favorable access to land, and other concessions (See India, Malaysia, Indonesia, Vietnam, etc.). Given the higher cost of land acquisition, building codes and labor costs, and taxes, among other things, Foxconn would certainly insist on favorable treatment. Even if it were to get it – and unlikely proposition – how would that play with Americans if a Chinese company were to be given such breaks? Such a backlash has already begun in India, by the way.
  1. Access to capital. Founder and chairman Terry Gou is Foxconn’s single largest shareholder. He has been leveraging his own capital, including company stock, to fund recent acquisitions, including the mega-deal for Sharp. Despite (or perhaps because of) being publicly held in Taiwan, getting a clear picture on Foxconn’s assets and true financial worth is exceedingly difficult. Would the company be willing to trade its famously secretive culture in exchange for access to American bankers and financial markets? Or would that be the blow that levels a house of cards?
  1. Access to labor. Foxconn is prone to promoting – or at least failing to dismiss – wildly optimistic forecasts of capital investment in local projects. In the past few weeks alone it has been tied to a nearly $9 billion display manufacturing investment in China and another possible $7 billion version in the US. The latter, the reports say, citing Gou as the source, would create 30,000 to 50,000 jobs. Putting aside the fact that few of these massive new job figures ever are completely realized, even 1/10th of that amount would be three times the workforce of the 6 million sq. ft. battery factory Tesla built in 2014, for which Nevada ponied up nearly $1.3 billion in tax credits and rebates.

Simply put, there aren’t that many qualified engineers and technicians available in and around the American countryside to fill a campus that large. (Even China, which supposedly graduates two to three times the number of students in engineering and related fields each year doesn’t appear to have sufficient manpower to handle those employment estimates.)

The US Census Bureau, which tracks such things, notes there are nearly one million job openings at US manufacturers today. And a single company is going to add 5% more to that figure? Not likely.

There certainly aren’t that many available workers in Utica (population 61,000) or Harrisburg (population 50,000). The latter, famous as home to the Hershey chocolate company, should know to resist Foxconn’s temptations. On second thought, maybe it does:

“One location Foxconn already is familiar with in Pennsylvania is Harrisburg, where the company has a small operation and, in 2013, announced intentions to spend $30 million on a new plant that would employ up to 500. For that project, Havens said, DCED officials met with Foxconn representatives on various occasions and showed them potential locations for the planned site, but the project did not come to fruition.”

As part of the same announcement in 2013, Foxconn said it would invest $10 million for research and development at Carnegie Mellon University in Pittsburgh. When asked whether Foxconn ever delivered on its pledge, CMU spokesman Ken Walters said Wednesday the university had no comment.”

According to my sources, Foxconn is outsourcing, or seeking to outsource, work to other EMS companies in Southeast Asia. That doesn’t sound like a company that intends to take on manufacturing consumer products in North America. Pointedly, Gou himself told Reuters of news Foxconn would expand in the US: “There is such a plan, but it is not a promise. It is a wish.”

So with apologies to Utica, Harrisburg and other fine American cities, we say if you are waiting on Foxconn, don’t hold your breath.

P.S. For a great breakdown see this piece: http://www.livemint.com/Opinion/uzqTrvW0hMxgkSKCnh41dP/US-faces-risk-of-Foxconn-panel-plans-that-dont-add-up.html

In Trade War of Words, Huawei Goes on Offensive

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“Huawei won’t move manufacturing to America.”

The headline sounds, well, weird, almost like “Tiffany’s not robbed.”

But the crux of it is a tale of global politics and business tactics growing ever-more-fascinating by the day.

In short, at the Consumer Electronics Show this week, the head of Huawei’s consumer business group issued a statement saying the smartphone maker doesn’t think much of the incoming Trump administration’s habit of calling out companies that build and import product to the US.

While Trump has thus far had mostly automakers in his sights (GM, Toyota, Ford), Apple has been the poster child for the war of words over trade. By speaking out at CES, the world’s largest technology trade show, Huawei is among the first companies, and likely the biggest, to go on the offensive.

“If [companies] move all manufacturing to the U.S., some manufacturing is not good for US companies, because costs will likely increase,” said Richard Yu, who was also a keynote at the show. “If you move all that [low-cost] manufacturing to the US, you’ll damage the US.”

Huawei has an uneasy history with the US. Its head is a former Chinese military officer Ren Zhengfei, and the company was banned from supplying telecom equipment to US government buyers after a Congressional committee accused the firm of spying on behalf of China. It is also the third-largest smartphone OEM in the world, and given the easy nature of using those devices as tools for capturing user habits and data, that is hardly less troubling.

More complex, Huawei, like Apple, depends heavily on Foxconn as a contract manufacturer. Although based in Taiwan, Foxconn founder and chairman Terry Gou is a strong supporter of China. He also is reportedly considering a run for president in his native Taiwan, a move that if successful would likely strengthen the ties between the island and mainland — and potentially further complicate already precarious relations between China and the US.

Until the new administration is officially installed in two weeks, the machinations are mostly bluster. But the chatter shows no signs of abating, and the campaigns for — and now, against — Made in America are just starting to heat up.

Don’t Expect Apple to Fall for US Again

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Analysis of the impact of Apple moving its production — or at least some of it — to the US will continue over the next several months but with the imminent change in US administration it could be peaking now.

Back and forth continues among various media sites debating whether Apple can or can’t, and should or shouldn’t, relocate some of its assembly.

Forbes today points to multiple studies, one by Syracuse and another by MIT (from June) that estimate assembly costs for a high-end domestically produced iPhone would rise 5% ($30 to $40). Other estimates peg it at closer to 13% ($100).

To be sure, there will be more of these types of discussions taking place. But much of the chatter disregards that Apple can’t do this alone. We have argued previously that Apple’s mastery of the supply chain has as much to do with its success as the occasionally startling hipness of its designs. The cool factor is subsidizing; keep in mind Apple has only 12% share of the cellphone market, and the tablet market — in which it once commanded a 90% stake — is now absolutely flooded with competitors and shrinking by the year. Apple’s net income has been falling with it, and the Watch Series 2, its latest entrant in the smartwatch sector, is not only losing share, the entire category is diving.

Capacity would not only be a huge issue, but the costs of scaling up are not included in any of the financial analyses I’ve read. The very real costs of $1 million or more per high-volume line would be to be absorbed — and passed on. (Zhengzhou is said to be the largest Foxconn/Apple factory in the world, with 94 lines currently running.) That’s not including the costs of finding and/or greenfielding factories, hiring, training, and so on. By the time all that is done, a new administration could be in place.

And then there’s the issue of taxes, which most reports fail to assess or even discuss. A New York Times article today, however, quotes a former chief of staff of the congressional Joint Committee on Taxation as saying: “US multinationals are the world leaders in tax avoidance strategies. In doing so, they create stateless income — income that has become unmoored from the countries to which it has an economic connection.”

Apple has stashed scores of billions of dollars offshore to avert a ginormous tax bill. The US corporate tax rate is third highest in the world on a top marginal basis, according to the Tax Foundation. This is a bit of a red herring — the lowest listed non-island nations are Uzbekistan and Turkmenistan, and no one is thinking of rushing there. But Ireland is among the lowest 20, a fact Apple has used to its advantage (although that could bite them, if the EU has its way).

All of this adds up to a very unlikely scenario that Apple will be motivated to relocate production. I could see a bit of highly publicized migration to what’s essentially a US showroom as a means to give politicians a “win” and displace some heat, but it would be trivial relative to the overall volume.

Update: Here’s yet another opinion, published on Dec. 29. And other, from the South China Post, asking whether China’s manufacturing is “hollowing out.”

Dec. 30 update: Foxconn’s CEO says will invest $8.8 billion in a new flat-panel display plant in China.