July 29, 2021

To depend less on Apple, Foxconn could diversify into chip production

Foxconn’s ambitions in semiconductors are becoming clearer. The Taiwanese electronics subcontracting giant, which assembles most of Apple’s iPhones, is said to be on the verge of reaching an agreement with the Chinese authorities for the establishment in Zhuhai of a factory to manufacture electronic chips on 300 mm pads. The investment would amount to 60 billion yuan, the equivalent of 9 billion dollars according to sources of the Nikkei Asian Review. It would be financed jointly by Foxconn, its Japanese subsidiary Sharp and the Chinese local authorities.



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Great dependence on the Apple customer

If the project is successful, he will provide Terry Gou’s group with its first semiconductor plant and fulfill his long-standing dream of diversifying his group into microchip manufacturing services, an activity with higher added value than the assembly of electronic products.

Foxconn, listed on the Taipei Stock Exchange as Hon Hai Precision Industry, now derives nearly half of its revenue from Apple. A dependence that puts it in an extremely vulnerable situation as the Californian giant sees iPhone sales lower than initial forecasts and that the smartphone market should decline by 3% in 2018 according to the firm IDC. By diversifying into semiconductor manufacturing services, it wants to break this dependence and get out of the shackles of electronic subcontracting, an activity where its margins are struggling to exceed 2%.

But from the assembly of electronic products, a largely manual job, to the manufacture of electronic chips, a highly technological and automated profession, the path seems hazardous. Terry Gou has the answer to the problem: Sharp, one of the jewels of electronics in Japan which Foxconn took control in August 2016. It is about the know-how of the Osaka group in the production of semi- drivers that he intends to rely on to lead his diversification, according to the Nikkei Asian Review.

Better known for its televisions, LCD screens and solar panels, Sharp is indeed present in semiconductors with components such as image sensors, laser diodes, touchscreen control circuits, sensors or television tuners. But since its difficulties in the early 2010s, it has stopped the development of its production technologies. Its current technologies seem sufficient to produce circuits for televisions, imagers and other sensors. But not to move on to the production of more advanced circuits such as those dedicated to assisted driving, robotics and automatons.

A market dominated by TSMC

Foxconn aims to operate its factory for the internal needs of group companies but also for external customers. Enough to put it in direct competition with semiconductor founders such as the Taiwanese TSMC and UMC, present in China, and the Chinese SMIC. To break through, it needs to reach the top technological level.

According to firm IC Insights, semiconductor foundry services represented a global market of $ 62.3 billion in 2017, up 8%. It is almost 52% dominated by the Taiwanese TSMC, followed by the American GlobalFoundries (10%), the Taiwanese UMC (8%), the Korean Samsung Foundry (7%) and the Chinese SMIC (5%).

Foxconn tried to get hold of Toshiba’s NAND flash memories. If it had been successful, this operation would have made it the second largest global supplier of this family of chips behind the Korean Samsung Electronics. But the case was won by the Pangea consortium led by the American investment fund Bain Capital. This failure does not seem to have pushed Terry Gou to bury his ambitions in semiconductors.