Foxconn able to shift US iPhone manufacture outside China - Nikkei Asian Review

NEW TAIPEI CITY, Taiwan -- Apple supplier Foxconn warned on Tuesday of a deepening technology divide due to the bitter trade battle between Washington and Beijing, and signaled it was ready to step up production of the iconic iPhone outside China if necessary.

The company also revealed plans to widen the range of products at its $10 billion flagship U.S. factory in Wisconsin, elevating the strategic importance of the plant amid the escalating trade tensions.

Although Apple had not asked Foxconn to move production, the two companies were watching trade war developments closely, said the head of Foxconn's semiconductor business, Young Liu, at the first investor day in the company's 45 year history. Liu, who hosted the event, is widely expected to take over from founder and chairman Terry Gou later this month, as he makes a bid for Taiwan's presidency.

"If Apple has any supply chain diversification plans outside China, we have sufficient capacity to help it cope with its need for U.S. market," he said.

Liu's comments indicate Foxconn is digging in for a protracted trade war, which has already dealt a blow to global growth expectations.

Foxconn, formally known as Hon Hai Precision Industry, is the largest contract electronics manufacturer in the world and counts Apple, Huawei Technologies, HP, Dell and other global leaders among its clients.

Liu said the electronics sector was facing a new challenge.

"We foresee [there] will not only be two standards in the world, but also two big markets," said Liu.

The warning about a growing technological divide will intensify concerns over the longer-term impact of the U.S. crackdown on companies and industries well beyond China's technology champions such as Huawei Technologies. Should Liu's warning be fulfilled, global companies could face the dilemma of either dividing investment or choosing between technologies. Moreover, analysts and economists have warned that a technological divide could threaten the global supply chains which have helped to bring down costs of consumer products.

Foxconn was responding to the deepening divide by expanding the range of products at its Wisconsin factory, launched last year to great fanfare as the biggest foreign investment in the U.S. "[The diversified product portfolio] in Wisconsin is all for addressing the need in the U.S. market," Liu said.

The Wisconsin project was crucial Foxconn's ability to deal with the new order of "one world, two systems," Liu said.

The products to be manufactured in the Wisconsin factory would be extended beyond the planned display panels to servers, networking products and automotive central controls. The factory is expected to be operational from the end of next year.

While Foxconn had originally intended the plant to manufacture new generation liquid crystal dioxide displays, the company has scaled back its ambitions several times, citing the overcrowded display market.

Liu said the first phase of investment would involve some $1.4 billion to $1.5 billion out of a total $10 billion investment commitment the company made in 2017.

Market watchers warned, however, that there would be risks in managing this new order.

"It seems that the Wisconsin project will now serve for multiple functions," said Chiu Shih-fang, a smartphone and supply chain analyst at Taiwan Institute of Economic Research. "Foxconn's base in Wisconsin can be seen as a strategy for manufacturing diversification, but it is challenging to manage so wide product portfolio from displays to other electronics products," she added.

Meanwhile, Liu said Foxconn and Apple, its biggest customer, were monitoring the U.S.-China trade discussions around the clock.

Although the American markets -- North and South -- contributed more than 40% of Apple's total revenue, the U.S. tech giant makes most of its products in China. This makes it vulnerable if Washington imposes a new round of tariffs on Chinese imports worth $300 billion.

Foxconn was well placed to help Apple, Liu said, with 25% of its total production capacity outside China and production sites in 16 countries all over the world.

Liu, joined Foxconn as Gou's special assistant in 2007, hosted the investor day as the chairman was absent for his political campaign. He has been in charge of various projects since then, including the company's computer mother board and iPad businesses. Currently, Liu is the captain of Foxconn's nascent semiconductor business across chip design, chip production, and chip equipment parts and also board of director at Sharp, the display and TV-related business.

Before his Foxconn career, Liu worked at United Microelectronics, the world's third largest contract chipmaker and he also co-founded chip design company ITE Tech. A Foxconn executive familiar with Liu describes him as "the only person in the Taiwanese manufacturing giant that has overseen businesses from upstream components such as chips to whole-system assembling and manufacturing."

"Liu has been Chairman Gou's trusted aide for many years although people outside did not know much about him," the Foxconn executive told the Nikkei Asian Review.

Liu has a bachelor's degree in Electro Physics from Taiwan's National Chiao Tung University, and a master's degree in Electronical and Computer Engineering from University of Southern California in the U.S.

Meanwhile, Foxconn on Tuesday unveiled a nine-person operational committee, which includes four new board of directors and the key executives from Foxconn's business groups. The operational committee will hold weekly meetings to handle the company's day-to-day operations and propose decisions for the board to make, after Gou steps down from the chairmanship later this month.

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