Mon, Jun 27, 2005 - Page 10 News List

Hon Hai chief drives firm with discipline, efficiency

MILITARY STYLE Terry Gou's demanding work ethic and relentless cost-cutting have helped Hon Hai find profits in a world of ever-shrinking margins



Among Taiwan's high-tech elite, Terry Gou (郭台銘), chairman of Hon Hai Precision Industry Co (鴻海精密), is a rarity.

Unlike most local tech executives with a strong technological background, Gou rose through the ranks on his personal qualities -- an iron self-discipline, quick wit and diligence.

Gou, 55, founder of the world's second-largest electronics manufacturing service (EMS) provider, has said with humor that "Hon Hai grows from numerous difficulties, like Taiwanese sweet potatoes that thrive on barren lands" -- referring to the company's self-sufficient rise.

Back in 1947, Hon Hai started as a maker of plastic parts for black and white televisions in the Taipei suburb of Tucheng, with only a handful of employees. Now Hon Hai is making desktop computers for Hewlett-Packard Co, mobile phones for Nokia Oyj and game consoles for Sony Corp, and employs more than 130,000 workers around the globe.

Gou is known for a stringent work ethic that demands discipline, super-efficiency and accuracy. That has led to his military-style management of Hon Hai, which gives it a far different corporate culture than its larger rival, Singapore's Flextronics International Inc.

In an interview with the Chinese-language Business Today published last week, Flextronics executive Michael Marks said, "Terry and I have completely different characteristics. Flextronics is not an army that fights wars. We work to make more money, but I do take days off to be with my family."

But Gou's strict management style is seen by many as an important factor boosting Hon Hai's efficiency and its ability to control costs. Better cost-cutting ability allows Hon Hai to undercut its rivals to win orders and still stay profitable in selected areas.

Though Hon Hai is not as diversified in its manufacturing as most other top-tier EMS vendors, "it instead chooses to focus on select industry segments in which it has a cost and technology advantage," wrote Flint Pulskamp, an analyst with International Data Corp, in a report.

As a result, Hon Hai is expected to outrank Flextronics and become the world's top electronics manufacturing service firm this year in terms of revenues.

Hon Hai could post NT$700 billion (US$22.32 billion) in revenues this year if the company hits the target of having 30-percent annual growth set by Gou, compared to Flextronics' forecast of US$16.5 billion for its 2006 fiscal year.

Relentless mergers and vertical integration have rapidly driven up Hon Hai's revenues over the past few years. Within two years, Hon Hai's revenues have more than doubled to NT$541.6 billion last year, from NT$257.77 billion in 2002.

In 2003 alone, Hon Hai completed three acquisitions. It bought local wireless equipment maker Ambit Microsystem Corp (國電) in November after purchasing Motorola Inc's Mexican handset factory and Finland's mobile phone casing maker Eimo Oyj earlier.

Last month Hon Hai said it is planning to buy a Hewlett-Packard computer plant in Australia after earlier obtaining a controlling stake in Chi Mei Communication Systems Inc (奇美通訊), a local handset maker.

Gou expects to complete one or two acquisitions of component makers in the second half of this year.

But Gou has never thought it would be good idea to tap into the own-brand business through any approach including acquisition -- a hot topic in the industry after BenQ Corp's (明基) recent purchase of Siemens' handset operation.

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