Mon, Sep 06, 2010 page12

• Gou looking to the future after a bumpy year

  • BLOOMBERG
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  Foxconn Technology Group (富士康) chairman Terry Gou (郭台銘) cut his long-term growth target for the world’s largest contract manufacturer of electronics by half as demand for Apple Inc’s iPhones and iPads fails to offset slowing computer sales.

  Gou, who founded the Taiwanese company in 1974, will tell managers that he’s lowering Foxconn’s annual sales growth target to 15 percent from the 30 percent fixture set for more than a decade, the chairman said.

  “How many companies have grown this big and still grow 30 percent?” Gou, 59, said in an interview at his office in Shenzhen, China, yesterday for Bloomberg BusinessWeek’s upcoming edition. “Fifteen percent is also big.”

  The reduced target, like the spate of suicides that’s kept him in Shenzhen since May, may underscore the challenges of managing a business that generates more sales than Apple or Dell Inc and employs almost 1 million workers.

  Taiwan’s richest man is planning to expand production in the US and enter fields such as biotechnology to sustain growth.

  “I don’t think investors are ready to hear news of such a big cut in the growth target,” said Vincent Chen (陳豊丰), who rates shares of Foxconn’s flagship Hon Hai Precision Industry Co (鴻海精密) unit “hold” at Yuanta Securities Co (元大證券) in Taipei. “These problems, including lower market growth, are giving Gou the biggest challenge he’s ever faced.”

  Hon Hai has fallen 18 percent in Taipei trading this year, underperforming the country’s TAIEX, after the deaths of at least 10 workers led Gou to raise wages and accelerate factory relocation plans in China. The stock’s tripled this decade, giving Hon Hai a larger market value than electronics companies such as Sony Corp or Panasonic Corp.

  Worldwide growth in shipments of computers, Foxconn’s main business, will slow to 12 percent next year from 18 percent this year, according to estimates at Taipei-based Capital Securities Corp (群益證券).

  Gou, who has run Foxconn since its founding, said he has a succession plan that may be announced in three years. He plans to keep his job until his one-year-old daughter gets married, he said.

  Gou said he expects sales to meet the 30 percent growth target this year as customers recover from the global recession. Revenue at Hon Hai Precision Industry Co will increase 39 percent to NT$2.72 trillion (US$85 billion), according to the average of 18 analyst estimates compiled by Bloomberg.

  Those sales would trump the sales of Gou’s customers. Analysts forecast US$63 billion for Apple, US$62 billion for ­computer-maker Dell and US$54 billion for mobile-phone producer Nokia Oyj, according to average estimates compiled by Bloomberg.

  Gou is considering biotechnology companies as acquisition targets, though he’ll slow Foxconn’s pace of purchases, he said, declining to identify any company names. Foxconn is also planning to expand in industries such as nanotechnology and media content, he said.

  Still, Foxconn plans to drive growth mainly through internal expansion after overpaying for some acquisitions, he said.

  “If I merge or acquire, I will be more conservative in what I need and what I really get from it,” Gou said. “On one company, I spent too much money to acquire it, then realized my internal knowledge is better than their internal knowledge.”

  Hon Hai has spent US$3.1 billion in the past decade for acquisitions, the biggest being its 2006 purchase of Taipei-based camera maker Premier Image Technology Corp for US$1.2 billion in stock.

  Innolux Display Corp (群創光電), Foxconn’s LCD unit, this year bought Chi Mei Optoelectronics Corp (奇美電子) and TPO Displays Corp (統寶光電) to form the world’s third-largest LCD maker.

  “Without acquisitions, it will be hard for them to grow,” said Calvin Huang (黃文堯), who rates Hon Hai “underperform” at Daiwa Securities Group Inc in Taipei. “They have new businesses, but their contributions are still too small to drive much growth.”

  Gou said he’s been spending most of his time over the past three months coping with the worker suicides, which prompted Foxconn to announce a doubling of wages at his largest facilities and relocate factories to inland China near the hometowns of his migrant workforce.

  Gou said he’s considering building a fully automated factory in the US as part of plans to expand production in the country and reduce Foxconn’s reliance on labor. The company, which currently assembles computer servers in Houston, Texas, will probably make components and finished products at factories in the US within five years, he said.

  “If I can have automation in the US, then ship to China, the cost-price would still be competitive,” Gou said.
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