Taiwan's biggest business intends to move up the value chain; will it be successful?
BEAM 2 Dec, 2017
Terry Gou, chairman and founder of Hon Hai Precision Industry, better referred to as Foxconn Technology Group, stated that the firm wishes to acquire the memory-chip unit of embattled Japanese industrial corporation Toshiba.
"Apple and Amazon will be injecting funds into the offer," he stated.
Apple's renowned handset was initially presented on June 29, 2007. Ever since then, Foxconn has turned into a household name among technology enthusiasts. However, Foxconn is not content with just assembling gadgets for others. It now intends to produce its own high-margin components to make up for thin profits in its main assembly business.
That aspiration led Foxconn to purchase Japanese gadgets maker Sharp, that makes display screen panels for iPads and iPhones. Now, it is eyeing for Toshiba's memory-chip business.
Core processor chips and panels are the 2 most expensive parts in a mobile phone, while memory-chips make another form of income. This is why Gou intends to capture Toshiba's memory chip business, although Japanese authorities are attempting to prevent the attempt, fretting hypersensitive innovation possibly leaked to China.
Gou is likewise looking to broaden his empire by establishing branded goods through acquisitions and internal programs. Sharp is assisting Foxconn to accomplish that objective, thanks to its prominent home appliances and TVs. Nokia, which once led the worldwide cellphone market, now has an indirect licensing deal with Foxconn through a 3rd party.
Foxconn stated in a report that it has pinpointed major areas for development, consisting of mobile phones, the Internet of Things (IoT), big data, cloud computing, "smart lives," industry 4.0 automation, robotics and advanced TV screen technologies.
Foxconn, the world's leading contract electronics manufacturer by revenue, hires about 700,000 individuals in China, 30% decrease from its peak of 1 million, as it strives for automation in response to increasing salaries.
The device assembler makes the majority of the iPhones at Zhengzhou, in Henan Province, which has been called "iPhone City." The Zhengzhou plant, with its 90 assembly line and 350,000 employees, can produce 500,000 iPhones a day, as stated by Macquarie, an Australian investment bank.
Foxconn puts together about 70% of the 210 million iPhones sold every year, as reported by Yuanta Investment Consulting in Taipei. Its smaller-sized Taiwanese competitors, Pegatron and Wistron, assembles the rest.
Aside from iPhones, Foxconn makes iPads, Kindle e-readers for Amazon.com, video game consoles for Sony and Nintendo, the humanoid robot Pepper for SoftBank Group, and servers for HP.
As worldwide mobile phone sales slows, Gou understands that persisting to depend on the assembly business will keep Foxconn's income margins slim. Foxconn intends to establish its own branded devices.
The Taiwanese organization has produced TVs and mobile phones, under the new brand, InFocus, although it only gotten little awareness outside of Taiwan.
The company's reliance on Apple for income has progressively increased since 2013. Last year, Apple made up 54% of Foxconn's income of NT$ 4.35 trillion ($142 billion), which was down 2% from 2015 caused by lukewarm sales of the iPhone 7, according the company's annual report.
The business model that Gou has established might be an obstacle for his successor to handle. Foxconn's gross profit margin is only 7%, while big electronics players like Sony and Nintendo have margins of around 40%. However, Foxconn had a net profit of around $5 billion last year, which is about 5 to 7 times more than those of Sony or Nintendo.