Sat, Nov 18, 2023 page9

• Why Foxconn needs to shoot for the stars

  • By Tim Culpan / Bloomberg Opinion
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  You could 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 are 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 this year flat.

  Four years after taking over from founder Terry Gou (郭台銘), chairman and CEO Young Liu (劉揚偉) no longer has the luxury of hyped-up iPhones and runaway demand for Sony Group Corp games consoles to juice sales. Instead, he has 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 has developed at least five EVs of its own and is working with global automakers including Stellantis NV to manufacture future models. A cameo from Nvidia Corp founder Jensen Huang (黃仁勳) — 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 is 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 are not 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 is 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 is under way 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 the future, more of Foxconn’s products might be bought by companies rather than consumers. It is already a major supplier of 4G and 5G communications systems sold by European clients.

  Most people might not purchase a satellite, but factories, trucks, ships, aircraft and logistics providers could increasingly rely on them to keep information flowing. Those two Pearls, orbiting Earth at 520km, 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 is to come after successive booms in desktop PCs, mobile phones, laptops and smartphones. Industrial enterprises are not waiting.

  Automakers, 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, are going to 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. Yet 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 automakers 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 would trust it to build products for the next industrial boom.

  Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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