Foxconn Technology Group: future is in EVs (2024)

Foxconn Technology Group, traded as Hon Hai Precision Industry Ltd on the Taiwan Stock Exchange, is the world’s largest contract manufacturer of electronics. While Foxconn’s primary manufacturing operations are based in Taiwan, it has set up production facilities in China, India, Europe, and the United States.

The company has been in the limelight as it is the largest supplier of Apple, the world’s largest technology company by market capitalization. More recently, Foxconn made headlines after violent protests erupted at its China iPhone manufacturing plant as workers were frustrated by the ‘closed-loop’ system at the facility due to Covid-19 restrictions. However, the company has now lifted these restrictions and has offered bonuses to employees it had recently hired.

The business model of Foxconn Technology Group

While the official name of the company is Hon Hai Precision Industry Ltd, it is internationally referred to as Foxconn Technology Group. Established in 1974 by Terry Gou as a supplier of electrical components to manufacturers.

The company opened its first factory in China in 1988 and has stayed in the market for nearly five decades now largely due to customer loyalty borne out of its cheap but quality production methods.

Foxconn came into prominence in the early 2000s, after it displaced Asus to win a contract for manufacturing motherboards for Intel. It was also the sole manufacturer for Apple for the longest time until the iPhone-maker decided to diversify its operations and gave out contracts to other manufacturers.

Fast forward to 2022, Foxconn Technology Group is now a tech manufacturing giant, with clients such as Microsoft, Amazon, HP, Intel, IBM, Dell, and Sony, to name a few. Apple is Foxconn’s biggest customer, with around 50% of the company’s revenue generated by manufacturing iPhones, iPads and Macbooks. Around 70% of all iPhones around the world are made by Foxconn alone, which makes it core to the business of Apple, the world’s biggest tech company.

Foxconn Technology Group’s core product line-ups are — smart consumer electronics, cloud and networking, computing products and components and others. The company owns over 54,253 patents and has R&D facilities and manufacturing plants in China, India, Japan, Vietnam, Malaysia, the Czech Republic, and the United States, among other countries.

Foxconn’s business hinges on original equipment manufacturers (OEMs) either as a foundry or as a supplier of components. The company has become infamous in the tech industry due to its cheap manufacturing capabilities. The company has five key tenets — technology, speed, quality, flexibility, and cost efficiency.

The cost-effective structure of Foxconn comes from the mass manufacturing of components. For OEMs, this is beneficial as it is cheaper for companies like Apple to contract Foxconn instead of constructing its own manufacturing facility. Whereas Foxconn can manufacture certain white-label items (without Foxconn branding) for various companies which then brand the product as their own. This significantly brings down costs for all stakeholders.

Over the past couple of years, the company has acquired several other brands. Some of the notable names which are subsidiaries of Hon Hai Precision Industry are Sharp Corporation, Belkin, FIH Mobile and Smart Technologies.

Performance of Foxconn Technology Group

For the quarter that ended September 30, Foxconn Technology Group reported revenue of NT$1.74 tn ($56.7 bn), a 24% jump compared to the same period in 2021. The net profit of the company rose 5% to NT$ 38.7 bn from NT$36.9 bn.

During the quarter, the company made the most profit (52%) from manufacturing smart consumer electronics products.

For the month of November, the company reported a 29% drop in revenue over the previous month, largely due to the production issues arising from the protests at its China plant.

Foxconn, listed as Hon Hai Precision Industry Co Ltd (2317.TW), has seen its share price decline by a mere 1.91% during the past twelve months. This is despite a global economic slowdown which is affecting factories in Asia.

The company has a market capitalization of NT$ 1.42 tn ($46.2 bn). The PE ratio stands at 9.99, whereas the forward PE ratio is expected to be 9.67. The company’s price-to-book ratio is 0.97. The stock has a dividend yield of 5.2.

What does the future hold for Foxconn?

While electronics remain the focus, Foxconn Technology Group is also active in medical device manufacturing. It manufactures products for patient monitoring, ECG devices, orthopaedic devices, digital health devices, and specialised medical equipment, to name a few.

More recently, Foxconn forayed into electric vehicles (EV), and is part of the consortium MIH, releasing two electric vehicle concepts. Foxconn chairman Young-Way Liu said that it wants to replicate its success as a contract manufacturer for electronics in the EV sector, and maybe make cars for Tesla in the future. Foxconn is already manufacturing EVs for US-based Lordstown Motors and has partnered with Taiwanese automaker Yulon Group to build an electric SUV.

“In the EV industry, we are resolute about CDMS: This means contract design and manufacturing service. This commitment will not change. In the next 10 years, Hon Hai in the EV industry will redefine CDMS in the automotive field and continue to promote vertically integrated technology services,” said Lui in a statement.

Hon Hai Precision Industry entered the EV market at an opportune time when the US restrictions on China have hobbled other EV makers.

“Simply put, if one wants to be serious about developing the best possible EV, you need advanced chips, and thus the latest U.S. chip restrictions put one of Hon Hai’s main sources of potential competition — China-based EV companies who could try and emulate Hon Hai’s EV platform business model — at a major disadvantage going forward,” said Insight Provider Vincent Fernando who publishes on Smartkarma.

Goldman Sachs has also taken note of the company’s EV foray and sees the company’s stock at NT$134, an upside of nearly 30% from the current prices.