Thu, Jun 07, 2018 - Page 11 News List

In Focus: Foxconn imagines life after Apple, but faces major risks

Reuters, TAIPEI

Foxconn chairman Terry Gou, center, prepares to cut a giant cake to celebrate the 30th anniversary of the Taiwan-based contract manufacturing giant’s first investment at an event in Shenzhen, China, yesterday.

Photo: Kelvin Chan/AP

Hon Hai Precision Industry Co (鴻海精密), also known as Foxconn Technology Group (富士康), yesterday started a three-day event to celebrate 30 years of doing business in China.

However, with its stock down almost 20 percent since late last year, the nation’s second-most valuable company with a market value of US$51 billion is under pressure to show that it can convert new initiatives into growth.

The Sharp Corp purchase in 2016 and a handful of more recent deals — including an agreement announced on Tuesday for Sharp to buy Toshiba Corp’s PC business for US$36 million — indicate that a push into producing its own branded products is one part of the strategy.

However, just as important is a complicated plan to provide “integrated solutions” for businesses that include sophisticated hardware and software services, such as cloud computing, Louis Woo (胡國輝), special assistant to Hon Hai chairman Terry Gou (郭台銘), said in an interview.

Woo called it a “new business model” that could be especially appealing to smaller companies and institutions such as hospitals, which have sophisticated technical requirements that they often have trouble handling on their own.

“We have built data centers for many of our customers, but we’re not known to provide data center services,” Woo said. “In the future, since we’re having all these pieces, we can put them together to provide a technical service to a business customer.”

The firm is also betting that it can package its traditional expertise to sell smart manufacturing services, included fully automated factories, to other industrial companies.

Woo added that none of this would happen overnight — a view shared by skeptical analysts.

“Right now, with the contract manufacturing, it’s very hard to switch to a new model,” Yuanta Securities Investment Consulting Co (元大投顧) analyst Vincent Chen (陳豊丰) said.

It also has to be careful to keep current customers onside, in particular Apple Inc, which is estimated to still generate about half of Hon Hai’s total revenue.

“There will definitely be risks” in pursuing so many different areas, Trendforce Corp (集邦科技) analyst Boyce Fan (范博毓) said. “But this will be key for Foxconn to find the next growth opportunity.”

Hon Hai’s technical strengths are in Sharp’s high-resolution imaging and displays, which use the next-generation 8K standard and have ready applications for medical imaging devices such as endoscopes.

Gou has also touted the possibility of smart toilets that could double as health diagnostic devices, with sensors feeding data to the cloud for analysis, Woo said.

That would play to Foxconn’s strength in 5G wireless communications equipment.

Such efforts would not come cheap, and the company is laying the financial and political groundwork for its next chapter with a Shanghai initial public offering (IPO) for one of its main subsidiaries, Foxconn Industrial Internet Co (FII, 富士康互聯網).

The US$4.3 billion IPO would provide funding for initiatives in smart manufacturing, cloud computing, data centers and 5G technology.

FII generates a big chunk of revenue from making comparatively mundane components, such as smartphone casings and frames, and for all the talk of healthcare and cloud and artificial intelligence, most of the IPO proceeds are earmarked for smart manufacturing.

Meanwhile, the parent company has huge capital needs for the core display business, with new plants in China and the US expected to cost US$20 billion between them.

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