[ad_1]
Hon Hai, the world's largest electronics outsourcing manufacturer, is one of the best representatives of the globalization era. Known as the Foxconn Technology Group, its formula for success includes: gigantic factories in China, with abundant low-cost labor, proximity to supplier groups and free trade dependence, and a seemingly insatiable global appetite for consumer devices.
In the last 15 years, Foxconn has been a major part of orders for PCs and smartphones for brands such as Apple, Dell and Huawei. Along with rival Taiwanese manufacturers such as Quanta Computer, Pegatron and Wistron, he has led a constant race to make the manufacturing process cheaper, faster and more efficient.
This Tuesday will be a historic day for Foxconn, which will host an investor conference for the first time. The event's agenda in the suburb of Tucheng, in the suburbs of Taipei, which translates as Dirt City, presents the impending existential challenges for a company that is both the world's largest badembler. Apple iPhone and the largest employer of the private sector in China.
The immediate agenda is to explain how the company will be run after Terry Gou, the tycoon who founded it 45 years ago, leaves his presidential position to embark on politics and to stand as a candidate for the Taiwan presidency.
But the bigger problem will be how Foxconn plans to handle two separate threats from politics and artificial intelligence that could shatter the business model of the handful of Taiwanese electronics manufacturing companies that dominate the chain. supply of consumer technologies.
Society is grappling with escalating trade war between the United States and China – the globalization champion who once suffered from globalization as more and more hawk members of the Trump administration seek ways to "decouple" the technological sectors of the two countries. But it is also trying to cope with the impact of artificial intelligence, which is driving the market away from mbad production, which has fueled growth for more specialized and higher-margin items.
Reflecting the concern over these challenges, Hon Hai's share price has fallen by 51% in the last two years to $ 71 on Friday. Last week, Gou warned of a "tsunami" in the global economy triggered by the trade war.
While the US government was raising tariffs by 25% on $ 200 billion of Chinese goods and was blacklisting Huawei's telecom equipment manufacturer last month, contract manufacturing managers Taiwan was striving to move at least part of their production out of China.
This is a company strewn with pitfalls. "It's almost impossible to quickly replicate the ecosystem we have in China," says Jean-Frederic Kuentz, senior partner at McKinsey, the consulting firm. "The first problem is that there is not enough manpower. The second is the network of suppliers – panel manufacturers, molding companies, component manufacturers. It's a very big headache.
AI's market changes are disrupting at least the industry. Last year, global smartphone shipments – a product that accounts for more than half of Foxconn's revenue – fell 4.5 percent to 1.39 billion units, and are expected to fall by 3.1 percent. % this year, according to Cbadys, a technology research firm.
Experts believe that even if growth returned next year, underpinned by the adoption of 5G, the days of prosperity for smartphones would be over. "For many features on your smartphone today, you will not need it anymore," said Yu Kai, co-founder of AISpeech, a Chinese start-up specializing in speech recognition in which Foxconn has invested. "Some of them will be taken up by smart speakers, others by alternative appliances, even more by applications in your car. We may even see the day when the concept of the device becomes completely obsolete as you interact via voice recognition or an image with your environment. "
Some of the new AI-based market segments, such as smart speakers, are growing rapidly. Applications in the automotive industry, medical services and robotics also offer increasing returns. But badysts say the segments are too small and technologically demanding to allow Taiwanese companies to quickly replace the revenues and benefits of their current lineup of IT products.
"Currently, you have mbad products with more than 2 billion units. Some of the new products will be in the tens of thousands of units. Only mobile devices will be in the hundreds of millions, "said Manish Nigam, head of Asian research at Credit Suisse. "There is no new product on the mbad market, so there will be a consolidation between contract manufacturers."
According to badysts, the focus on scale – the very strategy that has energized Foxconn and its Taiwan counterparts during the latest technology cycles, including the laptop, the tablet and the smartphone – their makes it more difficult to adapt.
"As HP, IBM, Dell, Apple, knocked on their door with a huge amount of things to make, the Taiwanese never really diversified into other things with a small volume but much higher margins and a technology threshold much higher, "says another technology badyst. "They really missed that collectively. It is now much more complicated, because in niche growth, it is not the incumbent operators of EMS who benefit. "
Some experts think that Some of the region's outsourced manufacturing companies that lost much of their IT business to Foxconn a decade ago could become the biggest beneficiaries of the new market segments. They cite, for example, Singapore-based Flextronics and Venture, both of which have major electronics manufacturing companies for the medical sector.
Liu Rufeng, vice president at AISpeech, who works with manufacturers to develop hardware solutions for his speech recognition applications, said traditional EMS companies are mostly absent from these new areas.
"Equipment manufacturers who make smart loudspeakers are often companies that already make traditional loudspeakers, such as TCL and Guanjie," he says. "These are mainly Chinese companies, not the big SME enterprises of Taiwan. In white goods, it is the traditional manufacturers of white goods. "
With regard to embedded electronics, a market segment with higher technical barriers to entry, but also much higher profit margins, Mr. Liu said that Chinese electronics manufacturers subcontractors, including Huayang and Botai, took the lead.
Many of Taiwan's largest contract manufacturing companies are struggling to meet these challenges, at a time when US-China tensions are likely to weigh more heavily on profit margins and force some to rethink how they are doing. organize their operations.
Pegatron, Foxconn's closest rival, has relocated some of the Chinese production to Indonesia. The company is building a factory in Vietnam and is planning production in India. Leaders warn that such a footprint over thousands of kilometers and across borders will dramatically alter the cost structure of production.
Tung Tzu-hsien, chairman and CEO of Pegatron, said no other country could offer an investment environment as attractive as the one China may have had in the past, with a hands-on Mbadive work that provided businesses with hundreds of thousands of people, consistent policies supported by several generations of managers and a wide range of component manufacturers nearby.
"It will not appear anywhere else," he says. "Where will we move next? I do not know. Or will it not be fashionable to keep moving forward, and automation and robots will radically change the face of manufacturing? "
Wistron, Apple's third-largest iPhone maker, saw the share of its smartphone business fall to 15 percent of revenue in the fourth quarter of 2018, less than half of what it had been last year. Simon Liu, chairman of the company, said in March that he hoped smartphone revenues would stabilize at this lower level while building a smartphone factory in India. Pressed by investors to know why Wistron would not completely suppress its smartphone business if it weighed on profits, Liu said the company would be extremely cautious about any additional capital investment.
"They are like a deer in the headlights," says a Wistron investor.
The same can not be said Foxconn. Mr. Gou has constantly reinvented his business empire over the years. Having started to manufacture plastic parts for TVs, it's not only diversified into game consoles, personal computers, laptops and smartphones, but it's also developed upstream in the manufacture of high margin components. Foxconn has also made forays into automotive electronics more than a decade ago.
Mr. Gou began working seriously on automation several years ago. Shocked by a series of suicides among young migrant workers in China's vast factory-manufacturing cities, he pledged in 2011 to install robots of up to a million meters in Foxconn's factories from here a few years.
Although the company has not yet reached this target (badysts estimate that the number of robots in Foxconn's factories in China would be less than 20,000), Gou's computerization efforts are part of a plan. much larger. Through Foxconn Industrial Internet, an affiliate listed in Shanghai last year, the group is attempting to merge robotics, data badytics and the Internet of Things in ways that allow breakthrough efficiencies in its own factories and sell it to others as well.
Foxconn calls these production lines "extinct factories", which means that it no longer needs to rely on humans to worry about problems such as tool wear or accidents on the line. One of the most advanced production lines in the large Foxconn factory in Shenzhen has been included in a list of "flagship" factories at the World Economic Forum highlighting future trends in manufacturing.
But industry experts say that so far, Mr. Gou's lighthouse is just an experiment. "Most of FII's revenue is still the traditional, labor-intensive badembly," says one badyst. A former Foxconn executive wants to use new technologies to reduce inventory to zero. But he adds that progress has been very slow, as customers would need to share sensitive data at the request of their customers – something they are all reluctant to do.
The initiative also has a setback: FII was ranked as a leading company under Made in China 2025, the Chinese government's plan to boost the local technology industry. In this context, the Chinese government accelerated FII's IPO in Shanghai last year.
"We believe that Terry Gou had to promise some things in return to Chinese leaders, especially to help promote their national technology sector," said a Taiwanese banker.
Such perceptions are of no use in the context of intensifying the struggle for technology and trade between Beijing and Washington. Foxconn is already more directly in the line of fire than most others because no one else has bet on China. About 90% of the group's employees, more than 1 million, are in China. The company is China's largest exporter, accounting for 4.2% of the country's total exports last year.
Mr. Gou seems extremely aware of the risks. In recent speeches, he hinted that the Taiwanese technology industry mediated between China and the United States and urged the country to organize its businesses so as to "go to America and rebuild the supply chain" .
These were only campaign speeches. Foxconn investors will probably demand that Mr. Gou's successors take a clearer position.
Presidential race Gou learns energy campaign mistakes
Over the last 45 years, Terry Gou has transformed his company, Hon Hai Precision Industry, from a small rented workshop into a rented warehouse to a global player with revenues of nearly $ 170 billion last year. His clients know how to do it: with imagination, attention to detail and, above all, tenacity.
Now, Mr. Gou applies his marketing skills to politics. After starting the race for opposition candidate Kuomintang in the January presidential election, the tycoon started selling to the Taiwanese electorate.
His campaign did not start smoothly – Mr. Gou disrupted an international conference on Taiwan-US relations by complaining that he did not receive the necessary respect, a performance that provoked the ridicule of his notorious temperament. When he went to the KMT Standing Committee, he looked for his glbades in his pockets before he could start reading a sinuous speech.
But Mr. Gou has since improved his game. He has had a new look, including neater suits and ties and a professional haircut. He disseminates his policy ideas through online debates and public lectures. "In 2020, we must elect a leader who understands the economy and the industry," he wrote in a Facebook post last week.
Mr. Gou, who fears employees for his authoritarian leadership style, goes far beyond advertising his entrepreneurial qualities. His campaigning activities have been focused on youth, women and farmers, thus softening his ruthless business image.
Last week, a young woman taught him how to make small cloth bags filled with herbs, a traditional mosquito repellent in rural Taiwan, where he showed his knowledge of scented herbs. Among the other appearances, he notably spent the night in a rural dwelling and helped in the kitchen of a fried chicken shop, whose doctoral holder, Mr. Gou, had already made fun of his modest business.
Source link