Hon Hai plans new factory in China

Hon Hai Precision Industry Co (鴻海精密), the world's No. 2 electronics-manufacturing service provider, said it plans to set up a handset-component factory in a city in northern China to better supply its clients in the area.

Hon Hai plans to pour US$19.8 million into the handset-component company in Tianjin through a unit of its handset affiliate Foxconn International Holdings Inc (富士康) traded in Hong Kong, according to a company statement which was filed to the Taiwan Stock Exchange Corp yesterday.

The company will develop, manufacture and sell components for mobile devices, according to the statement.

But speculation swirled that Hon Hai's latest move only served as a precursor to bigger plans to buy client Motorola Inc's handset plant in Tianjin with the goal of clinching a deal to make low-end handsets for the world's No.2 cellphone brand.

"We simply aim to facilitate optimal supplies to our customers through factories close to them," a company official told the Taipei Times on condition of anonymity.

The Hon Hai official said the speculation about the Tianjin plant was groundless.

He declined to provide details about Hon Hai's customers.

Hon Hai used a similar strategy in 2003 to buy Motorola Inc's Mexican handset factory.

Daniel Wang (王德善), an analyst with Primasia Securities in Taipei, said Hon Hai's latest Chinese investment is likely to be part of a greater ambition to play a bigger role in supplying low-end handsets to Motorola.

"Hon Hai's ultimate goal should be winning more orders from Motorola by buying the plant, but I don't think the purchase will be imminent, as the scale of the factory is much bigger [than the one in Mexico]," Wang said.

Strengthening the component supply chain to save costs is a further step by Hon Hai to undercut rivals, which was crucial to promote orders for less expensive models, Wang said.

Before that, Hon Hai bought a local handset company, Chi Mei Communication Systems Inc (奇美通訊), in May to boost its phone-design capabilities, he added.

Compal Communications Inc (華寶通訊), which makes 80 percent of its sales by supplying handsets to Motorola, was feeling the rising threat from Hon Hai, Wang said.

Compal Communications, a handset manufacturing subsidiary of laptop computer maker Compal Electronics Inc (仁寶電腦), is trying to extend its reach to high-end mobile phones by integrating its parent company's cellphone operation, Wang said.

Hon Hai shares were up 0.91 percent to NT$166 on the Taiwan Stock Exchange yesterday.