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Home , Foxconn, Quanta Computer, Terry Gou

1 quickly. The company was tapped by in Hon Hai Precision / in 2014 2009 to supply Xbox consoles for the holiday season, shortly after Hon Hai landed the contract to provide with PS3 consoles. It also makes several products for Apple -- the iPod Nano music player, the iPhone, the iPad, and the iMac. In 2014, Foxconn contracted to provide 50% of HP’s “All-in- One” PC orders; HP also deals with original design manufacturers (ODMs) such as , Technology, and . Hon Hai is expanding its focus beyond consumer electronics, with interests in biotechnology, nanotechnology, and media content. The company is also targeting the automotive market in Assembly at Foxconn plant in China (automotive connectors), (mini- Photo: Laptopmag.com that use technology), e-book readers for Hon Hai Precision Industry, commonly known by its the market (Hon Hai makes about 80% of e- trade name, Foxconn, is the world's largest contract book readers, including the Kindle), and electronics manufacturer. Hon Hai has annual cell phones for Taiwan and China. revenue of about US$130 billion and more than 1.2 million employees, placing it among the world’s ten FIH Mobile largest employers (third largest private sector A Hon Hai affiliate, FIH Mobile (previously called employer, behind Wal-Mart and McDonalds). The Foxconn International Holdings) makes cell phone company may assemble as much as 40% of all handsets and similar devices. The company faced consumer electronics products sold globally. challenges after handset orders from major clients Hon Hai is headquartered in , such as and declined as they lost Taiwan. Chair founded the company in share to like the iPhone and devices 1974 to make plastic switches for TVs. Hon Hai based on 's Android operating system. FIH became publically listed in 1991. sales declined from $10 billion in 2005 to $5 billion in 2013. FIH, began relocating some of its Chinese Products & Customers facilities in 2007, shifting some production to Northern China and to reduce costs. FIH Hon Hai now manufactures computers, consumer posted losses in 2010 and 2012, but returned to electronics, communications, and other products profitability in 2013. In that year, FIH posted a such as connectors, cable assemblies, enclosures, substantial majority of its revenue in China, flat-panel displays, game consoles, motherboards, reflecting a major shift from the mid 2000s when servers, and TVs. Hon Hai also provides design most clients were based in Europe and the Americas. engineering and mechanical tooling services. The company now makes phones for and for Foxconn customers include or have included: Chinese startups such as Xiami, as well as products  Taiwan: Acer for of the U.S. and Hunan TV of China.  U.S.: Amazon, Apple, Cisco, , Google, HP, In 2013, FIH Mobile signed on with struggling Microsoft, Motorola, Vizio smartphone maker Blackberry. BlackBerry, like  Canada: Blackberry most phone makers, has long contracted production  Japan: , Sony to EMS firms. However, the new Blackberry Q20  : Nokia (to be launched for the business market in 2014) and  China: Huawei, Xiami Z3 (launched in Indonesia in 2014) phones were also Because of its size and sophistication, the company designed and distributed by Foxconn Technology is able to take on major new orders relatively Group. Foxconn reportedly spent on three months on the new products, compared to year-long design cycles for many phones. 1 Will Mitchell prepared this note from public sources, including Acquisitions & Internal Development CapitalIQ and Mergent Intellect [http://www.mergentintellect.com/index.php/search/companyDetai The company has expanded its product lines and ls/656064441/overview] (May 2014) design capabilities through a series of acquisitions. Examples include Finland-based Eimo (2004),

1 renamed Foxconn Oy, which makes plastic components, modules, system assembly, design, moldings for cell phone components. Foxconn also manufacturing, maintenance, and logistics. Through bought Taiwan-based Ambit Microsystems for $1.1 the eCMMS model, Hon Hai believes that its billion (2004); Ambit makes routers, modems, and Southern China campus offers both the world's networking equipment. Hon Hai acquired T a i w a n largest electronics manufacturing base and the Premier Image Technology in 2006. shortest supply chain. Hon Hai has increased manufacturing capacity Workforce & Management through acquisitions, such as a Motorola facility inb Mexico in 2003 and purchase of PC manufacturing A series of suicides by workers at its assets and associated logistics services in , facilities in 2010 was highly publicized. Foxconn Mexico, and the U.S. in 2008 from competitor responded by increasing wages and relocating some Sanmina-SCI as it exited the PC-making business. production facilities inland, closer to many workers’ homes. It also restricted the number of work hours Hon Hai subsidiary Innolux Display acquired flat- and hired a substantial number of new employees (in panel display manufacturer Chi Mei Optoelectronics 2011, the number of employees rose by 85%). in 2010, creating a company called Chimei Innolux. Through Chimei Innolux, Hon Hai now competes Hon Hai has a reputation for being highly with major display makers in South Korea and disciplined in its operations, as it seeks to meet Taiwan, which dominate the market. customer orders precisely in terms of quality, cost, and timeliness (QCT). The discipline is reflected in Hon Hai also actively undertakes internal in a hierarchical organization, with senior managers development as it prepares to enter new markets, playing hands on roles in many activities. The stating that it had paid too much for some company also emphasizes high IT security. Because acquisitions. The company is investing about $1 it contracts with many competing firms (e.g., Cisco billion to build a new manufacturing facility in and Huawei), Foxconn has created customer-specific China as part of an environmental protection units for major clients, which face strong non- technology initiative. The plant will develop and disclosure requirements. Foxconn views the ability make products for the alternative energy market, to meet customer QCT and security demands including LED backlights and LCD displays. Hon accurately as a major differentiating skill relative to Hai subsidiary Foxsemicon is working with its competitors. semiconductor manufacturing equipment maker Applied Materials to develop products for solar In 2013, Hon Hai began a restructuring that seeks to energy manufacturing equipment. streamline decision-making. Plans suggested that the restructuring would be based on ten key products: Growth and Strategic Positioning handsets, tablet PCs, notebook PCs, AIO (all-in-one) Foxconn grew rapidly in the 2000s, particularly as PCs, portable TVs, TVs, electronic whiteboards, its largest customer, Apple, grew. Foxconn used the LED tablet PC displays, networking, and cloud opportunity to grow strategically at the expense of computing. Hon Hai expects the restructuring to its rivals. By 2011, for instance, Foxconn employed help it focus more on OEM clients and end-market around 50,000 toolmakers and 2,000 workers to consumers. The company may spin off units such as design and fabricate molds and dies for components. satellite communication, sales channels, e- EMS firms typically do not possess such commerce, and flat panels as part of the changes. capabilities, instead buying most of the parts required to assemble products. By manufacturing key peripheral devices in-house, Foxconn provided Operations more value-added than any other EMS competitor. Primary source: http://en.wikipedia.org/wiki/Foxconn This has helped Foxconn surpass Taiwanese EMS rivals such Compal, Qantas, and Wistron, while Foxconn has factories in Asia, Europe, Mexico and maintaining a lead on other global firms such as . Flextronics in Singapore, the second largest EMS. China Foxconn now promotes what it calls “eCMMS”,  Foxconn has 13 factories in nine Chinese . which stands for “e-enabled Components, Modules, cities—more than in any other country Moves, and Services”. eCMMS is an integrated  Foxconn's largest factory worldwide is in business model that includes mechanical, electrical, Longhua, Shenzhen, where hundreds of and optical capabilities. The skills cover solutions thousands of workers (varying counts include ranging from molding, tooling, mechanical parts, 230,000, 300,000, and 450,000) are employed at

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the Longhua Science & Technology Park, a walled campus, sometimes referred to as

"Foxconn City" or "iPod City". Covering about 1.16 square miles (3 square km), it includes 15 factories, worker dormitories, a swimming pool, a fire brigade, its own television network (Foxconn TV), and a city center with a grocery store, bank, restaurants, bookstore, and hospital. While some workers live in surrounding towns and villages, others live and work inside the complex; a quarter of the employees live in the dormitories, and many of them work up to 12 hours a day for 6 days each week.  Another of Foxconn's factory "cities" is Technology Park in Zhengzhou, province, where it is reported 120,000 employees work.  Foxconn continues to expand, and planned factories include sites at Chengdu in Sichuan province and in province.

Brazil: The company’s facilities in South America are located in . These include mobile phone factories in and Indaiatuba, plus sites in Jundiai, , and Santa Rita do Sapucaí. Europe: Foxconn has factories in Hungary, , and the . It is the second-largest exporter from the Czech Republic. India: Foxconn has operational units in the Special Economic Zone of , . Japan: Foxconn and jointly run two plants manufacturing large-screen televisions in Osaka. In August 2012 it was reported that Sharp, while doing corporate restructuring and downsizing, was considering selling the plants to Foxconn, which was believed to be receptive to the plan. : As of 2011, Foxconn had seven factories in state, where it is developing an industrial park at Kualijaya that will include four factories. Mexico: Foxconn has a facility in San Jerónimo, Chihuahua that assembles computers, plus two facilities in Juárez – a former Motorola production base that manufactures mobile phones and a set-top box factory acquired from . LCD televisions are also made in the country by Foxconn in a plant acquired from Sony. United States: In December 2013, Foxconn announced plans to invest $30 million over two years to build a manufacturing facility in Harrisburg Pennsylvania that will develop robotic equipment, as well as putting $10 million into R&D at Carnegie Mellon University.

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Exhibit 1. Excerpts from Hon Hai Precision Financial Statements ($US billion, December 31 year end) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenue $1.2 $1.9 $2.9 $4.4 $8.1 $11.9 $17.1 $28.9 $40.5 $52.5 $59.5 $61.2 $102.8 $114.0 $134.3 $132.3 Gross profit $0.4 $0.5 $0.6 $0.8 $1.2 $1.5 $2.1 $3.0 $4.0 $5.1 $5.1 $5.8 $8.4 $8.8 $8.6 $8.5 SGA $0.2 $0.2 $0.3 $0.3 $0.5 $0.6 $0.8 $1.1 $1.3 $1.8 $2.3 $2.4 $4.1 $4.7 $3.3 $3.3 R&D $0.0 $0.0 $0.1 $0.1 $0.1 $0.2 $0.2 $0.3 $0.3 $0.5 $0.7 $0.8 $1.3 $1.3 $1.6 $1.6 Net income $0.2 $0.2 $0.3 $0.4 $0.5 $0.7 $0.9 $1.3 $1.8 $2.4 $1.7 $2.4 $2.6 $2.7 $3.3 $3.6 Employees 210,932 486,000 1,290,000 ROS 14% 13% 11% 8% 7% 6% 5% 4% 5% 5% 3% 4% 3% 2% 2% 3% Balance sheet

Total Assets $1.1 $1.8 $2.7 $2.9 $3.8 $6.0 $9.6 $14.0 $19.2 $26.7 $26.8 $31.9 $47.3 $57.1 $70.3 $77.4

Total Liabilities $0.6 $0.7 $1.3 $1.3 $1.8 $3.4 $5.7 $8.0 $10.5 $14.9 $14.8 $17.1 $29.7 $36.8 $46.9 $50.4

Total Equity $0.5 $1.1 $1.3 $1.6 $2.0 $2.6 $3.9 $6.0 $8.8 $11.8 $12.0 $14.8 $17.6 $20.3 $23.4 $27.0

Geography Taiwan 100% 52% 57% 60% 70% 65% 55% 60% 57% 59% 57% 51% 5% 3% 3% 1% U.S. 26% 29% 29% 33% Ireland 15% 22% 28% 31% Singapore 12% 11% 9% 10% China 11% 13% 9% 7% Japan 12% 7% 6% 4% Other 0% 48% 43% 40% 30% 35% 45% 40% 43% 41% 43% 49% 19% 15% 17% 14%

Exhibit 2. Hon Hai Precision Stock Trends, 1999-2014

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Exhibit 3. Hon Hai Milestones  Taiwan Ratings evaluation as long- 1994 term issuer: grade AA-, prospect:  Capital to NT$1,303,000,000 stability. (US$43 million at NT$30/US$1)  S & P evaluation: grade BBB;  Reinvested by Vate Technology & prospect: stability. Lung Hwa Electronics  Became largest private  Many new products (e.g., AN, AT) manufacturing enterprise in Taiwan. 1995  Earliest manufacturer of quantity  Capital to NT$2,279,000,000. production for Pentium 4 CPU  Reinvested by Unimicron Stocket478. Technology & United  Issued NT$5 billion of domestic Microelectronics unsecured ordinary corporate bonds  Many new products (e.g., L/P MCA, 2002 SGC, RF).  Capital to NT$20,648,970,000.  Huyue Factory carried out third  According Taiwan Ratings, largest phase for expansion manufacturing enterprise in Taiwan. 1996  First prize of Best Corporate  Capital to NT$3,580,000,000. Strategy by Asiamoney.com.  Reinvested by Hongyang Venture  Largest exporter in Greater China Capital Investment & Guifeng Co. 2003 1997  Capital to NT$25,109,744,000.  Capital to NT$5,118,000,000.  Issued US$450 million of overseas  Set up heat transfer product unsecured and transferable business office and environmental- corporate bonds friendly electro-plating technique  According to IR Magazine, awarded development department. Best Investor Relations in Taiwan.  Established Material Testing Center  Acquired Motorola Chihuahua 1998 Factory in Mexico  Capital to NT$7,346,000,000. 2004  Established High-Speed Electrical  Capital to NT$32,310,231,030. Test Lab, the EMI/RFI Lab, and  Acquired Eimo Oyji of Finland. Heat Transfer Lab.  Acquired Taiwan Ambit  First listing in Information Microsystems (Stock) Company. Technology 100by Business Week  Became largest 3C OEM globally 1999 2005  Capital to NT$11,000,000,000.  Capital to NT$40,383,230,780.  First capital raised from global  Acquired Antai Power Company finance market via GDR issuance  Acquired Chi Mei Communication with 10% premium for issuing, Systems creating new high in overseas  Issued NT$11,500,000,000 of capital raising by domestic firms. domestic unsecured ordinary  Selected as Best Management corporate bonds. Company in Taiwan by Asian  Subsidiary Foxconn International Money Holdings was listed in . 2000  Selected as largest enterprise in  Capital to NT$14,529,000,000. Taiwan by Common Wealth.  Issued US$345 million of overseas  Ranked among Top 15 of the unsecured and transferable World’s Most Admired Companies corporate bonds. in Electronics by Fortune.  Acquired Foxconn Optical  Joined Electronic Industry Code of Technology through its subsidiary – Conduct (EICC), dedicated to FOTI Holdings Corporation promoting corporate social and 2001 environmental responsibilities  Capital to NT$17,687,800,000.

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2006  Ranked 176th among the Forbes  Capital to NT$51,681,387,530. Global 2000.  Acquired Taiwan Premier Image  Ranked first among Taiwan Top Technology Corp. 1000 Enterprises for five  Issued NT$18,000,000,000 of consecutive years according to the domestic unsecured and evaluation of Common Wealth. transferable corporate bonds.  Ranked first among Taiwan  Selected as Happiest Taiwan enterprises for five consecutive Enterprise according to survey by years by Taiwan Ratings. 104 Job Bank.  Ranked 194th among Global 500  Selected as Most Desirable Enterprises byFinancial Times. Company of office staff of Taiwan  Ranked 112th among Fortune according to the survey by Cheers. Global 500.  Selected as Best Investor Relation  Awarded Most Admired Company in Company in Taiwan by IR Magazine Taiwan by Common Wealth  Selected as Best Corporate 2011 Governance of the Year in Taiwan  Capital to NT$106,890,066,630. by IR Magazine  Issued NT$18,000,000,000 of 2007 domestic unsecured ordinary  Capital to NT$62,907,665,030. corporate bonds  Awarded Most Admired Enterprise  Ranked 189th among Forbes Global in Taiwan by Common Wealth. 2000.  Selected as Best Investor Relation  Ranked first in Top 1000 Taiwan Company in Taiwan by IR Magazine Enterprises for six consecutive  Awarded Progress Prize for best years by Common Wealth investor relation company in  Ranked first among Taiwan Taiwan by IR Magazine. enterprises for six consecutive  Awarded World’s Top 10 Chinese years according to Taiwan Ratings. Enterprises of Year by Asiaweek  Ranked 60th among Fortune Global  Ranked 154th among Fortune 500 by Fortune Global 500 Enterprises 2012 2009  Capital to NT$108,358,665,270  Capital to NT$85,789,318,550. ($US 3.6 billion).  Issued NT$6,820,000,000 of  Issued NT$16,300,000,000 of domestic unsecured ordinary domestic unsecured ordinary corporate bonds. corporate bonds.  Ranked 109th among Fortune  Ranked first among Top 1000 Global 500 Enterprises. Taiwan Enterprises for seven  Ranked first among Taiwan consecutive years according to enterprises for four consecutive Common Wealth Magazine. years by Taiwan Ratings.  Ranked first among Taiwan  Awarded Best Management enterprises according to Taiwan Enterprise in Taiwan by Finance Ratings for seven consecutive Asia years.  Recognized as one of Asia’s  43rd among Fortune Global 500 Fabulous 50 of Asia by Forbes  156th among 2010  Capital to NT$96,612,482,030. Source:  Issued US$1 billion of overseas http://www.foxconn.com/GroupProfile_En/CompanyMilestones.html transferable corporate bonds  Issued NT$6 billion of domestic unsecured ordinary corporate bonds.

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