How will the 67-year-old Gou Ming and the Foxconn Empire break through the shackles of Apple?

On December 21st, in 1988, Foxconn established a factory in the mainland. In 1998, Foxconn ranked 25th in the list of global business companies in the US Businessweek. From 2002 to 2015, Foxconn was ranked in the Chinese mainland. The top 200 export enterprises. In the words of foreign media, "The rise of Foxconn in the electronics industry is shocking!"

How will 67-year-old Gou Ming and Foxconn empire break through the shackles of Apple?

According to the AndroidAuthority website, the company’s tentacles have surpassed electronics manufacturing and assembly and have become one of the world’s largest companies. In 2017, "Fortune" magazine listed Foxconn as the 27th largest company in the world. But where exactly can it grow?

The rise of Foxconn

Since the launch of the iPhone in 2007, Apple has always relied on Foxconn to assemble equipment at factories in mainland China and Taiwan. Foxconn is the world's largest contract manufacturer. Founded by legendary Terry Gou in 1974, he still retains control. Foxconn employs more than 700,000 people (more than 1 million in peak season) and uses various components to assemble devices such as the iPad, Kindle, Playstation4, Xboxone, NintendoSwitch, and televisions.

Foxconn has grown into a true empire, with at least nine major business units, through a series of subsidiaries and related companies in various sectors, including printed circuit board manufacturing, touch module and battery module manufacturing, nanotechnology, and connector manufacturing. The subsidiary FIHMobile is committed to OEM manufacturing of non-Apple mobile phones. Foxconn's most important customer is Apple, which manufactures and assembles millions of devices (mostly iPhones) every quarter.

The relationship between Apple and Foxconn can be traced back to 2000, when Foxconn received an order for the production of Apple's new-generation imac. However, this cooperative relationship between the two sides has also caused many negative impacts, especially after a number of worker suicide incidents occurred in Foxconn in 2010.

Foxconn installed safety nets outside many buildings and hired consultants. Apple was criticized for contracting work to such a company that allegedly caused its employees to suffer. In an interview in 2010, Apple founder Steve Jobs had refuted: "Foxcon is not a sweatshop but an ordinary factory, where there are restaurants and cinemas. From the factory's point of view, this is a very good factory. If you count the suicide attempt, 13 people committed suicide or attempted suicide this year. You know that there are 400,000 people in their factories and the suicide rate is much lower than in the United States, but it is still very troublesome."

Foxconn did not receive much multimedia attention. The company managed to maintain and expand its wealth and maintain its relationship with Apple. In recent years, Foxconn’s independent founders and their company’s ambitions have received attention. Recently, the NikkeiAsian Review published a rare in-depth conversation with Gou, focusing on its attempt to acquire the memory chip business of Japan’s Toshiba Corp., with a bid of up to US$19.5 billion. This is the "big brand" ambition of the company and Terry Gou. Obviously, for Gou, the assembly of the iPhone for Apple alone cannot satisfy his ambitions.

Since 1974, Terry Gou is the core and soul of the company he founded and has always firmly controlled the company. Recently, Terry Gou acquired the control of Sharp, headquartered in Osaka, Japan. This is the first time in history that foreign companies have acquired Japanese electronics companies. Sharp was Japan's largest liquid crystal display (LCD) maker at the time and was the main supplier of Apple iPhoneX’s previous model screens.

After a detailed analysis of the deal, Bloomberg said that Terry Gou is a "relentless person." In a report in BusinessWeek, he recorded many scenes of persistent and hard work by Gou, who started with his mother’s loan of 7,500 US dollars. By using an unattainable ability, he can convince anyone to work with him. For example, he had convinced Compaq representatives to order Foxconn's computer case, although at the time the company only made connectors.

The 67-year-old Guo Taiming is still pushing Foxconn's expansion. According to reports, although he has talked about the retirement plan, the company does not have a clear successor, and at least in ten years, the search for successors will continue. Gou is still firmly in control of the company. Compared with other people in the industry, he is still quite young. Mitarai Fujio, chairman and chief executive of Canon, is 82 years old. Taiwan’s chip industry legend, Morris Chang, returned to TSMC as chairman and chief executive of the company at the age of 78 in 2009. He is now 86 years old but still holds the post of chairman.

Many Taiwanese companies are under family control and face or are about to face a succession crisis, including computer makers Acer and Quanta. Sophia Cheng, a former research director at Merrill Lynch Taiwan Ltd., said that one of the main criteria for judging the performance of Taiwanese companies is how the founders train the next-generation successors.

According to reports, the turnover rate of Foxconn personnel is high, and it is difficult for senior executives to match Gou's expectations, commitments, and leadership style. Terry Gou is said to be by no means a representative of the company's name. He maintains strict control over all aspects of his business. Gou's "bad temper" is also well-known. A former executive revealed: "The better you do it, the harder it will be for him to please."

According to reports, five of Gou's five children had little or no interest in the company, or they were too young to take on their responsibilities.

Profitability and Apple issues

Behind Apple's continued success, it is not easy for Foxconn to maintain a daunting growth rate. Although its revenue is still strong, the profit margin is tightening. The company's financial report shows that Foxconn's gross margin has dropped to 5.83%. The major electronics manufacturers such as Apple, Sony, and Nintendo, which use Foxconn OEMs, have a profit margin of about 40%. In 2016, Apple alone accounted for 54% of Foxconn’s $142 billion in revenue. At Foxconn’s recent earnings conference, the company experienced a drop in revenue, which analysts believe is due to problems with the iPhoneX vendor. Foxconn's model always sells its manufactured parts to customer equipment and completes the final assembly with a meager profit or even a loss.

Gou Ming-ming is famous for focusing on five-year plans, and he is very good at capturing the short-term and long-term trends of the industry. However, the delay of iPhone X production due to third-party component issues not only undermines the interests of Apple and consumers, but also affects Foxconn’s reputation. The initial sales of the iPhone 8 are not too warm, but inventory is increasing. In the past 12 quarters, Apple's sales have continued to boom. With sales of global smart phones slowing, sales have exceeded 40 million.

India is a new demand market, but medium and low-end equipment does not have much profit. Another unfavorable factor is the rise of Huawei, a Chinese manufacturer. Huawei is currently the world’s third-largest manufacturer of smartphones, and its manufacture and assembly are all done by the company. Investors disagreed with the iPhone X's ability to sell. Since Apple released a new phone on September 12, Foxconn's share price has plummeted by about 20%, while Apple's own stock price has risen by about 8%.

For Apple, a small problem with Apple will cause great pain to Foxconn, but it is not easy to change this situation. Yuanta Securities analyst Vincent Chen said: "In the future, Foxconn will still be inseparable from Apple. For Foxconn, Apple's orders have become a heavy burden."

The expansion of the brand

Although "Nihon Keizai Shimbun" reported that Foxconn may be seeking to develop first-line brands, this practice has considerable doubts. Analysts familiar with the company revealed that “not competing with customers has always been a key Foxconn strategy. In most cases, Foxconn’s losses may be much higher than the benefits of having its brands compete with customers.” Foxconn did not respond The reporter’s request for comment, so their ambitions in this area are still unclear.

Foxconn controls Sharp. The latter also distributes mobile devices in China, just like the Sharp Aquos S2 without a border. It also produces a series of InFocus phones under the American company InFocus brand. Through FIHMobile, Foxconn also has the right to produce low-end mobile phones under the Nokia brand.

In addition to investing in emerging companies, Foxconn is also a major player in the Vision Fund of Softbank. Its members include Qualcomm, Apple, and the sovereign wealth fund of Saudi Arabia. Foxconn recently acquired SMART Technologies, headquartered in Calgary, and invested in China's carpooling application, the self-timer mobile phone maker Meitu, and 360-degree camera maker Lytro.

Foxconn also made large-scale investments in Chinese artificial intelligence startup Megvii and bitcoin startup Abra. In cooperation with Tencent and HarmonyNewEnergyAuto, Foxconn founded FutureMobility, a driverless car startup with the goal of launching fully electric and fully-autonomous vehicles by 2020.

In the United States, Foxconn and Wisconsin have signed a major agreement, the company will invest 10 billion US dollars in the state to build factories, create 13,000 jobs, the focus may be on the production of television LCD panels. The factory will produce a 10.5G LCD panel (display panel) capable of supporting 8K resolution on 70, 80, and 100-inch TV screens.

The future of Foxconn

Although Terry Gou has obtained significant (and controversial) tax breaks from Wisconsin, Foxconn has great risks in building factories in Wisconsin. Tim Culpan, a Bloomberg columnist, believes that Foxconn’s move poses a risk to both Wisconsin and the company. In Asia, the large supply of high-quality LCD panels (including Foxconn's own 10.5G factory built in southern China) will hurt profit margins and cause huge losses to Foxconn. For Wisconsin, tax relief may lead to no return in the coming decades.

The obvious short board of Foxconn is the OLED technology that can be used on TVs and smart phones, and Apple has adopted this technology on the iPhonex. Sharp's production capacity has been smoothly controlled by Sharp, but it cannot provide Apple with any type or high-quality professional OLED screen supply. Together with Samsung's start of providing OLED panels to Apple, Foxconn will spend at least $11.5 billion to build the latest generation of 6GOLED factories, producing about 250 million 6-inch screens each year. However, such a large-scale construction project takes a long time and brings significant technical risks.

Eric Chiou, vice president of WitsView Research, said via email: “In addition to Samsung Display, Apple has been supporting LG Display as a leading supplier of OLED screens for its iPhone. Foxconn and Sharp lacked experience in mass production of OLED panels, and there was no With enough funds to invest in this area, Foxconn cannot overcome these challenges at least in the short term. Taking into account the time and financial constraints, pursuing OLED is not a way to effectively use resources for Foxconn and Sharp."

Samsung and LG both doubt whether Sharp can begin mass production of OLED screens by 2020. Eric said that for Foxconn and Sharp, the focus on television is more meaningful. He explained that high-priced TV may be the main contributor to overall revenue growth. With its television business reaching a new level of economies of scale and cost competitiveness, Foxconn can obtain a greater number of ODM (original design manufacturer) orders, and will not be limited to production for the Sharp brand.

It has been reported that Foxconn and BOE Technology, headquartered in China, will compete with Japan Display, a joint venture between Sony, Toshiba and Hitachi, whose LCE technology project is currently not profitable. Foxconn may also plan to receive orders for the assembly of Apple Smart Watches in 2018. Foxconn said that in addition to mobile devices and advanced TV displays, it may also enter the "Internet of Things," "big data," "cloud computing," "smart life," "Industry 4.0 automation," and "electric cars." It is said that Foxconn is also exploring the production of pure electronic products, including medical, automotive and artificial intelligence industries.

Terry Gou and Apple will remain the two pillars of Foxconn’s success, and any changes in the relationship between Terry Gou and Apple will threaten the continued growth of Foxconn. The company is heavily betting on electric cars and TVs and continues to invest in a range of startups and larger companies in order to win new jobs and ensure they are part of the "next big event." The assembly contract will continue to drive Foxconn's earnings growth, but the high-tech and brand value may bring it the next leap forward.