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Foxconn is rewriting its business model

Foxconn Technology Group has finally joined titans Taiwan Semiconductor Manufacturing Co. and Apple Inc. in predicting a worsening outlook for the year as a rebound in demand for gadgets fails to materialize. Rather than hunker down though, the maker of smartphones, computers and AI servers is spending more to accelerate its global migration.

At its peak, Foxconn employed one million workers in a single Chinese city to assemble iPhones. Both the Taiwanese electronics giant and its chief client hung on to that operations model because it was efficient and effective. Those days are over. Recent announcements show Foxconn is committed to expansion despite the downturn and myriad challenges in setting up overseas.

Foxconn Technology Group has finally joined titans Taiwan Semiconductor Manufacturing Co. and Apple Inc. in predicting a worsening outlook for the year as a rebound in demand for gadgets fails to materialize. Rather than hunker down though, the maker of smartphones, computers and AI servers is spending more to accelerate its global migration.

At its peak, Foxconn employed one million workers in a single Chinese city to assemble iPhones. Both the Taiwanese electronics giant and its chief client hung on to that operations model because it was efficient and effective. Those days are over. Recent announcements show Foxconn is committed to expansion despite the downturn and myriad challenges in setting up overseas.

Foxconn Technology Group has finally joined titans Taiwan Semiconductor Manufacturing Co. and Apple Inc. in predicting a worsening outlook for the year as a rebound in demand for gadgets fails to materialize. Rather than hunker down though, the maker of smartphones, computers and AI servers is spending more to accelerate its global migration.

At its peak, Foxconn employed one million workers in a single Chinese city to assemble iPhones. Both the Taiwanese electronics giant and its chief client hung on to that operations model because it was efficient and effective. Those days are over. Recent announcements show Foxconn is committed to expansion despite the downturn and myriad challenges in setting up overseas.

But India will not replace China as the center of global electronics manufacturing. No one will. Vietnam, Mexico, Brazil, Thailand and even the Czech Republic could all lay claim to being a future production hub, with each offering their own unique mix of cheap and abundant labor, infrastructure, proximity to end markets, and logistical advantages.

Instead, Foxconn is splitting the difference and has picked the right time to ramp up its investments outside China by spreading the money around the planet. Rather than one or two massive facilities employing hundreds of thousands, we can expect dozens of locations to operate in a hub-and-spoke model comprising factories that utilize tens of thousands of staff apiece.

Foxconn’s flagship Hon Hai Precision Industry Co. on Monday announced a 30% drop in second-quarter operating income after revenue fell 14%, the most in a decade. As recently as May, Foxconn predicted revenue this year would be flat. Growth in computing products was to offset weakness in its consumer electronics division, which includes smartphones. But now revenue from computing and also cloud and networking is expected to fall. As a result, Foxconn cannot avoid a decline in revenue for the full year.

This weakness could end up being the perfect opportunity to focus on migration. It’s very hard to think about shifting production when management attention and industrial equipment are flat out trying to fulfill quotas of iPhones. But fallow times mean idle machines can be shipped when they’re not in use, and factory bosses can think about setting up new lines.

In the past five months alone, the Taipei-based company has announced more than $1.1 billion of investments into India, Vietnam and Thailand. This includes purchasing 2 million square meters (21.5 million square feet) of land in India’s Bengaluru and Telangana, 480,000 square meters in northern Vietnam. In addition, it bought over $33 million in machinery directly from Apple to be deployed in India, and a further $41 million went into its Thai EV joint venture Horizon Plus.

There’s also a pledge to spend $780 million over five years in southern Taiwan’s Kaohsiung to make it a hub of EV development and pumped another $90 million into a US holding company which manages its investment in Wisconsin.

Put together, these are not the spending patterns of a company sitting still or resting on its China laurels. The broad spread of investment locations also recognizes that none alone can be relied upon to replace the mega factories it operates in China’s Shenzhen Zhengzhou, which will remain important manufacturing hubs for years to come.

Foxconn’s slow pace of migration outside China, until now, especially the cautious expansion in India, can easily be viewed as reticence or even setback. Instead, what needs to be remembered is that Foxconn built its significant footprint in Shenzhen and later Zhengzhou over 40 years, with continued and unified support across all levels of the Chinese government. It’s fanciful to expect any company to replicate such success within a far more raucous and unpredictable nation within a few years.

But with China’s grip on the global supply chain loosening, and worldwide demand in retreat, now is an opportune time to move forward with plans to rewrite its business model. Bloomberg

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