You can make a pretty good living supplying more than two-thirds of the world’s most-famous consumer gadget. Except when demand for that high-priced smartphone starts to wane and you’re left looking for the next big thing. With the boom times gone, the world’s largest consumer-electronics manufacturer has little choice but to make new bets.
Foxconn Technology Group’s second-straight slide in sales lays bare the folly of the Taipei-based manufacturer relying on Apple Inc for more than half its business just as the iPhone designer is experiencing its largest slowdown in 22 years. A 12 percent drop for the third quarter puts Hon Hai Precision Industry Co, Foxconn’s listed flagship, on track this year for its worst decline in history. On Tuesday, the company reiterated prior expectations that each of its divisions would fall or, at best, end 2023 flat.
Four years after taking over from founder Terry Gou, Chairman and Chief Executive Officer Young Liu no long has the luxury of hyped-up iPhones and runaway demand for Sony Group Corp games consoles to juice sales. Instead, he’s had to branch out into sectors that, on the surface, look well outside Foxconn’s wheelhouse. That includes products previously limited to industrial companies such as cars and satellites.
Despite a major presence in electronics including computers, servers, games machines and handsets, the company dedicated much of its annual showcase last month to electric vehicles. It’s developed at least five EVs of its own and is working with global carmakers including Stellantis NV to manufacture future models. A cameo from Nvidia Corp founder Jensen Huang — to show off their joint development of AI servers — was one of the few hints that Foxconn is actually focused on anything beyond challenging Tesla Inc and Toyota Motor Corp in the global electric vehicle market.
It’s no mistake that Huang and Liu kept using the somewhat confusing term “AI factory” — which simply means servers that collate and process data for use in artificial intelligence. They aren’t trying to sell to the iPhone and PlayStation crowd. Their audience is executives at industrial enterprises with billion-dollar budgets who see AI as the future of business.
Last weekend, another phase of Foxconn’s new future took flight from southern California. Among the payload of SpaceX’s Transporter 9 rocket were PEARL-1H and PEARL-1C, its first low-earth orbit satellites. There’s no money to be made from these two nanosatellites — instead the company is using them as a demonstration of its ability to build what amounts to computers that fly among the stars, devices that need to be robust, reliable and able to withstand the rigors of space travel.
It also points to another more subtle change that’s underway at Foxconn. Many of the most popular consumer devices over the past 20 years were made at the company’s factories in China, including Sony’s PlayStation, Apple’s iPhone, laptops from Dell Technologies Inc and HP Inc, and smartphones from Xiaomi Corp. In future, more of Foxconn’s products will be bought by companies rather than consumers. It’s already a major supplier of 4G and 5G communications systems sold by European clients.
Most people won’t purchase a satellite, but factories, trucks, ships, aircraft and logistics providers will increasingly rely on them to keep information flowing. Those two Pearls, orbiting Earth at 520 kilometers (323 miles),
show off Hon Hai’s work in broadband communications and next-generation networks that go beyond 5G technology.
Global tech companies are trying to figure out what’s to come after successive booms in desktop PCs, mobile phones, laptops and smartphones. Industrial enterprises aren’t waiting.
Carmakers, satellite companies, factory operators and infrastructure providers are moving quickly to adapt. Whereas Tesla once had the EV market almost to itself for a decade, every major car company is now adamant that they, too, will be a player. Foxconn sees that as an opportunity. The external manifestation of this new plan is a lineup of vehicles ranging from sedans and SUVs to tractors and buses. But the true moneymaker is inside, with all the cables, components and microcomputers a modern vehicle needs to function. For years, this parts market was left almost exclusively to carmakers and an industry of direct suppliers. Now, electronics companies want in.
Foxconn’s satellite launch is part of this trend. The Taiwanese giant is hoping to remind clients — and investors — that it has more tricks up its sleeve than deploying a million workers to assemble consumer gadgets. It just needs to find a new set of customers who will trust it to build products for the next industrial boom.
Tim Culpan is a Bloomberg Opinion columnist. Views do not represent the stand of this publication.
Credit: Bloomberg
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