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Talk of the Day -- Terry Gou, Tim Cook in same boat?

2012/05/10 20:52:06

Terry Gou, founder of Foxconn Technology Group, presided over a ground-breaking ceremony in Shanghai Thursday for the group's new headquarters of its China operation.

The construction project betrays the Taiwanese business mogul's determination to turn his group's growth model from manufacturing to retail and service.

Gou's decision to change the course of Foxconn, the world's largest electronics manufacturing service (EMS) provider or contract electronics maker, is expected to help speed up China's transformation from a global factory to a global service center and consumer market, industry sources said.

The move, however, has also dropped a bombshell on Taiwan's electronics contract manufacturing industry, the sources added.

The following are excerpts from a special report in the Thursday edition of the United Evening News on why Gou has decided to change Foxconn's course at this moment and the move's possible impact:

Gou reportedly bought the piece of land at the Lujiazui financial district of Pudong in Shanghai in 2005 and began to plan the headquarters construction project last year.

But industry sources said the real driving force behind this project was the surprisingly strong shopping craze in China following the launch of Apple Inc.'s iPhone 4S and New iPad.

With vast plants in China, Foxconn has been the main assembler or key supplier of Apple's iPhones and iPads.

Apple CEO Tim Cook was also impressed by robust sales of the company's high-end gadgets in China, which contributed much to the U.S.-based consumer electronics giant's record-setting revenues in the first quarter of this year.

Cook made a rare trip to China in March this year. During his stay, Cook met with Gou for wide-ranging talks. The agenda covered improving labor conditions and safety at Foxconn's Chinese factories that assemble iPhones and iPads, industry sources said.

In addition, the sources said, the two megamoguls exchanged views on expanding their partnership from product manufacturing to exploration of China's domestic market.

As a matter of fact, Gou began to tap China's retail market five years ago and has accumulated knowledge of the vast Chinese market through trials and errors.

Market analysts said Foxconnor Hon Hai Group stands a good chance of transforming itself from a manufacturing service provider to a distributor or retailer,

Besides producing Apple products, Foxconn's sprawling plants also churn out gadgets for almost all world-renowned consumer electronics and information technology brands, including HP, DELL, Nintendo, Sony and Nokia.

Speaking at the Shanghai headquarters' ground-breaking ceremony, Gou said Foxconn's manufacturing in China will focus on consumers in the country of 1.3 billion people, as well as research and development in technology, sales and services.

Foxconn accounted for 6.7 percent of China's overall foreign trade in 2011 and its annual sales of NT$3.5 trillion made up 21 percent of Taiwan gross domestic product (GDP).

Given its strong manufacturing strength and the launch of China's 12th five-year economic development plan that encourages technological upgrades and service industry development, Hon Hai may stand a good chance of succeeding in its transformation bid.

However, some industry insiders said Hon Hai may be unable to see great improvement in its gross margin through its partnership with Apple, unless the U.S. company is willing to sacrifice its share of profits in favor of Hon Hai.

Hon Hai posted a net profit of NT$81.934 billion last year, with earnings per share (EPS) reaching NT$7.65. Its net profit amounted to NT$14.92 billion in the first quarter of this year, up 3.6 percent year-on-year, but its Q1 gross profit margin dropped to 4 .02 percent.

Some industry insiders said Hon Hai's change of its focus or course signals that Taiwan's electronic manufacturing service (EPS) may have peaked.

"We are now worrying about the future of the nearly 1,000 local small- and medium-size EPS providers," an industry maven said, adding that the government should assist EPS executives in drafting feasible transformation and business growth models. (May 10, 2012).

(By Sofia Wu)