Foxconn Eyes Factories in U.S. as China's Appeal Fades
TAIPEI, Taiwan -- Taiwan's Foxconn Technology Group, the major supplier of Apple's (AAPL) iPhones and iPads, may build high-tech factories in the United States and low-cost plants in Indonesia as the appeal of "made in China" fades into a burden.
Beset by rising costs and labor unrest in China, Chairman Terry Gou told employees on Sunday that Foxconn is considering diversifying away from its manufacturing heartland. The world's largest contract maker of electronic goods has little choice if it's to protect margins and stay ahead of peers who have adapted the Foxconn playbook into their own success stories.
"The U.S. is a must-go market," said Gou, speaking at the group's annual party Sunday to mark the end of the Chinese year. Many customers and partners have asked Foxconn to open shop in the U.S., Gou said, with an eye on advanced manufacturing much closer to their home base.
At the same time, Indonesia will be a top priority this year as a potential production base with attractive costs and skills. %VIRTUAL-article-sponsoredlinks%That would tie in with Foxconn's deal to design and market phones in the country with BlackBerry (BBRY) as the Canadian company seeks to reverse its decline in the smartphone business.
"Foxconn has no choice but to do it," said Danny Lee, a fund manager of Mega Financial Holding's fund unit. "China is no longer a manufacturing hub for companies worldwide, especially so for the PC industry."
In the U.S., Foxconn businesses like flagship unit Hon Hai Precision Industry, Foxconn Technology and FIH Mobile could take advantage of geographical proximity to open up new deals with partners such as Apple as they develop new gadgets.
"I think they're looking more closely at the U.S. in order to move closer to some of their biggest clients. Obama is also really pushing to return manufacturing to America and boost employment opportunities," said Kuo Ming-Chi, an analyst at Taipei-based KGI Securities.
Foxconn's ambitious growth plans could see it lift annual revenue to T$10 trillion ($333 billion) a decade from now, from T$4 trillion in 2013, Gou told employees Sunday.
The news helped shares in Hon Hai shrug off a slide in the broader Taiwan market. Hon Hai stocks eased 0.1 percent, while the main index closed 1.6 percent lower.
Best known for putting together iPhones, Foxconn honed its skills by meeting Apple's exacting standards and supply chain rigor. It boasts a workforce of more than 1 million, and the scale to negotiate cheaper component prices than BlackBerry could obtain on its own.
Gou placed emphasis on Indonesia for future development. He said the country, rather than India, will be best able to replace China as the world's manufacturing hub in the future.
"Foxconn views as a rising market with great potential. There's also no shortage of IT personnel there. He's prioritizing places with the most potential for domestic market growth, and Indonesia is at the top of that list," said KGI's Kuo.
Indonesian government officials have said Hon Hai wants to gradually invest as much as $10 billion over 5 years with local partner Erajaya Swasembada, and Indonesia will offer the Taiwanese firm a tax package aimed at kickstarting the plan. Hon Hai has yet to confirm these details.
-Additional reporting by Michael Gold.