Hon Hai Precision Industry may be the biggest electronics company you never heard of. The company, more commonly known by its trade name, Foxconn, is the world's largest contract electronics manufacturer. It manufactures computers, consumer electronics, communications, and other products, including connectors, cable assemblies, enclosures, flat-panel displays, game consoles, motherboards, servers, and televisions. Hon Hai also provides design engineering and mechanical tooling services. The global company's customers include Apple, Cisco, Dell, Nokia, and Sony. Chairman Terry Gou founded Hon Hai in 1974 to make plastic switches for TVs.
Hon Hai's operations are closely tied to consumer demand for computers and consumer electronics. Because of its size the company is able to take on significant new orders in a relatively short time. The company was tapped by Microsoft in 2009 to supply Xbox consoles for the holiday shopping season, shortly after Hon Hai landed the contract to provide Sony with PS3 consoles. The company's sales also increased after Microsoft released its Windows 7 operating system. It also makes several products for Apple -- the iPod Nano music player, the iPhone, the iPad, and the iMac -- all products that are in greater demand during the holiday season.
After having a 30% growth rate for years, in 2010 the company lowered its growth forecasts. Computer sales are predicted to slow throughout 2011 and demand for iPhones and iPads has not offset shrinking PC sales. In 2011 the company's sales were up just 11% to $113 billion, and its net income rose a mere 2%.
Hon Hai has tried to expand its focus beyond consumer electronics, with biotechnology, nanotechnology, and media content mentioned as industries the company is interested in as it tries to sustain growth. The company is also targeting the budding automotive market in China (the company makes automotive connectors), smartbooks (mini-laptops that use smartphone technology), and e-book readers for the Taiwan market. (Hon Hai already makes about 80% of e-book readers made globally, including the Amazon Kindle reader.)
In another move aimed at expanding its reach, Hon Hai has tried to reach a deal with Sharp, which is spiraling downward along with prices for flat-panel TVs. Sharp, which has had too narrow a focus on TVs in the last few years, also makes displays for Hon Hai's Apple products, something Hon Hai is eager to get its hands on. In 2012 Hon Hai offered to buy nearly 10% of Sharp for around $1.7 billion. But Sharp's market value plummeted, as it later widened expectations for a record loss and its credit was downgraded to junk status. Hon Hai wants to renegotiate the initial deal, including lowering the price and having a hand in Sharp's operations. Chairman Gou left negotiations in Japan a day early and without a deal when Sharp's management balked at the idea. Hon Hai is also looking at buying plants in Mexico and China from Sharp; the two companies are joint owners in the Sakai LCD panel factory, which has been running below capacity and contributed to the losses at Sharp.
Hon Hai focuses more on internal development than growth through acquisitions, stating that it had paid too much for some acquisitions. The company has expanded its product lines and design capabilities through a number of select acquisitions, including Finland-based Eimo, renamed Foxconn Oy, which makes plastic moldings for cell phone components. It also bought Taiwan-based Ambit Microsystems for $1.1 billion; Ambit makes routers, modems, and networking equipment. Hon Hai has also boosted its manufacturing capacity through acquisitions, such as its purchase of the PC manufacturing assets in Hungary, Mexico, and the US, with associated logistics services, from rival Sanmina-SCI, which is getting out of the PC-making business.
Hon Hai subsidiary INNOLUX Display acquired flat-panel display manufacturer Chi Mei Optoelectronics through a share swap in 2010, creating a company called Chimei Innolux. Through Chimei Innolux, Hon Hai will compete with big display makers in South Korea and Taiwan, which dominate the market.
Outside of acquisitions, Hon Hai grows organically by investing in new manufacturing facilities as it prepares to enter new markets. The company is investing about $1 billion to build a new manufacturing facility in China as part of its environmental protection technology initiative. The plant will develop and make products for the alternative energy market, including LED (light-emitting diode) backlights and LCD display modules. Hon Hai subsidiary Foxsemicon is working with semiconductor manufacturing equipment maker Applied Materials to develop products for solar energy manufacturing equipment.
A spate of suicides by workers at its Shenzhen production facilities sent Hon Hai reeling in 2010. The company responded by increasing wages at its largest facilities and relocating some production facilities inland, closer to the hometowns of much of the workforce. It has also hired a significant number of employees (in 2011, the number of employees rose by 85%) and restricted the number of hours that can be worked. The moves increased production costs for Hon Hai, not all of which could be recouped by raising the prices charged to manufacturers. After reports of poor working conditions at some facilities, Apple took heat for continuing to source products from Hon Hai.
A Hon Hai affiliate, Foxconn International Holdings (FIH) has struggled after handset orders from major clients declined. The company makes handsets for companies, including Nokia, which are losing market share to smartphones like the iPhone and devices based on Google's Android operating system. FIH, which began relocating some of its Chinese facilities in 2007, also moved some production to northern China and to India to lower costs. – less