Foxconn


2022-11-18

Foxconn and Saudi Arabia Have Formed Automotive Joint Venture That Will Start Selling Electric Cars by 2025

Foxconn (Hong Hai Precision Industry) and Saudi Arabia’s Public Investment Fund (PIF) have agreed to jointly establish an electric vehicle (EV) brand named Ceer. PIF is Saudi Arabia’s sovereign wealth fund, and Ceer will operate as a joint venture of the two parties. As the country’s first EV brand, Ceer will target not only the home market but also the wider regional markets of the Middle East and North Africa.

Saudi Arabia represents largest car market in the Middle East. The country’s new car sales totaled 580,000 vehicle units for 2021. This year, however, has seen a decline with the figure for the first three quarters coming to 290,000. Until now, Saudi Arabia has no home-grown car brand, and there is no carmaker indigenous to the Middle East. Presently, Toyota and Hyundai are the two main automotive groups operating in Saudi Arabia. The former’s and latter’s market shares in the country come to 34% and 18% respectively. Also, since Saudi Arabia is one of the world’s major oil producers and has kept gas prices low for its citizens, the conditions of its car market give an absolute advantage to vehicles powered by fossil fuels. Up to recently, Saudis have had no real incentives to invest in the development of electric cars and the build-out of the supporting infrastructure. In terms of “green” offerings, the Saudi car market so far has only received hybrid electric vehicles (HEVs) from a few automotive brands (i.e., Toyota, Lexus, and Hyundai). Among countries in the Middle East, Israel is currently the leader with respect to EV availability.

Even though Saudi Arabia continues to build its wealth primarily through the exportation oil, it is now driven by government policies and the momentum of reform to develop a domestic EV industry. For instance, the Saudi government is promoting electrification for at least 30% of the vehicles operating in the country’s capital Riyadh by 2030. However, this target is not mandatory. Turning to the creation of a home-grown EV brand, this joint venture with Foxconn is also among a series of actions taken by the Saudi government to reduce carbon emissions, adopt green energy, and reform the country’s economy. More measures need to be implemented to support the growth of a domestic EV industry. After all, the Saudi Energy Ministry just completed the regulatory framework for EV charging stations this August.

Among EV brands and startups, the most noticeable ones tend to come from the US and China because these two countries are the world’s major car markets and possess enormous domestic demand. On the other hand, opportunities are also brewing for new entrants in the emerging markets that are promoting vehicle electrification. The UAE, for example, has a local EV startup named Al Damani that begun small-scale production this June. TOGG, which is another newly formed company, commenced production on Turkey’s first EV this October.

Commenting on the formation of Ceer, TrendForce said it is very difficult for EV startups to grow their businesses especially if they are operating in countries without an existing automotive industry. Usually, these new companies will have to poach talents from the more established automotive companies and obtain licenses for certain key technologies. Ultimately, they will have to draw enough support from the automotive supply chain in order to have a chance to push their vehicles to the mass production stage. Additionally, while dealing with the complexity of vehicle assembly, startups will have to quickly scale up production in order to control their costs. All of these challenges have to be overcome by rising EV manufacturers that are located in emerging markets.

2022-04-21

Will Foxconn Pivot Away from China?

(AmCham Taiwan|Contributing Writer: Matthew Fulco) Aggressive local competition and rising geopolitical risk make the contract electronics manufacturing giant’s China dependency more precarious than ever.

Hon Hai Precision Manufacturing Co., better known as Foxconn, is the largest private employer in China and has long depended on the country as its manufacturing base. As recently as 2018, Foxconn assembled half of the world’s iPhones at a massive factory in Henan Province.

Yet in recent years, Chinese manufacturers have aggressively moved into the Apple supply chain long dominated by Taiwanese suppliers and Foxconn in particular. According to Nikkei Asia, in 2020 Chinese suppliers to Apple outnumbered Taiwanese firms for the first time: 51 and 48, respectively.

“In Apple’s supply chain, Chinese manufacturer Luxshare has been Foxconn’s strongest competitor, as the company’s share of the Apple supply chain for hardware products including iPhone and Apple Watch is expected to keep rising in the next few years,” says Rachel Liao, a senior industry analyst at the semi-governmental Market Intelligence & Consulting Institute. For example, Luxshare produces Apple’s AirPods. The Chinese company also obtained about 3% of iPhone 13 Pro assembly orders in 2021, a share that is expected to increase to 5% in 2022, Liao adds.

Luxshare is not just competing with Foxconn in smartphones; the Chinese firm is also moving into the fast-growing electric vehicles (EV) industry, where Foxconn hopes to carve out a new niche. In February, Luxshare established a US$267 million EV joint venture with Chery group, one of China’s largest automakers.

Foxconn has lofty EV ambitions. In March, Chairman Young Liu said that by 2025 the company intends to reach 5% of the EV market share globally, with production capacity of 500,000 to 700,000 vehicles a year.

Initially, Foxconn seemed to be focusing on the China EV market, the world’s largest. In 2021, China’s electric vehicle sales surged 169% to a record 2.99 million units, accounting for almost 15% of overall vehicle sales in the country, according to the China Passenger Car Association (CPCA).

Foxconn announced in early 2021 that it would invest in the Chinese-German EV startup Byton. The planned investment – reportedly US$200 million – would be used to launch mass production of the Byton M-Byte by the first quarter of 2022.

But in September 2021, the tie-up with Byton hit a snag due to the Chinese startup’s poor financial condition, reported Nikkei Asia. It is unclear if Foxconn has other China EV investments of note, although in early 2020 the company said it planned to form a joint venture with Fiat Chrysler Automobiles NV to develop and make electric vehicles in China. Otherwise, its prospects in the country’s EV market – large and fast-growing but ultracompetitive – are uncertain.

“Taiwanese manufacturers are good at [automotive] component manufacturing and OEM production,” says Caroline Chen, a research manager at the Taipei-based market research firm TrendForce. She notes that electric vehicles require more chips than traditional vehicles, “which means automotive semiconductors present a big opportunity for Taiwan.”

Traditionally, Foxconn’s forte is not in chipmaking, but it has expanded into that segment in recent years. Last year, it acquired local chipmaker Macronix’s Hsinchu facility, which will likely be used to develop silicon carbide chips for automotive applications.

Regarding the China EV market, Foxconn will also have to consider that “China has endeavored to achieve self-sufficiency in chips for all sectors, including electric vehicles,” says MIC’s Eric Tu, an industry analyst.

Stepping up diversification

Given steadily rising labor costs in China, Foxconn started to shift some manufacturing capacity to lower-cost destinations in Asia more than a decade ago. The company accelerated those efforts after the U.S.-China trade dispute began in 2018. Though Apple products ultimately received tariff waivers, that situation may not be permanent. It is thus seen as prudent for Apple and its suppliers to reduce reliance on China.

“Due to geopolitical tensions in recent years, Apple has gradually moved assembly plants of iPhones to other countries, such as India,” notes MIC’s Liao. While the assembly of new iPhones is still mainly based in China, India has also started mass production of some models such as the iPhone 12. “It is expected that Foxconn will keep expanding its production capacity in India in the future, and mass production of the iPhone 13 in India will likely kick off around mid-2022,” Liao says.

Foxconn has also signaled its intent to participate in India’s development of a domestic semiconductor ecosystem, a US$30 billion initiative. It is the first foreign manufacturer to do so. In February, the Taiwanese company announced it would cooperate with Indian natural resources conglomerate Vedanta to build a semiconductor fab in the subcontinent. Vedanta will be the majority shareholder in the joint venture while Foxconn will hold a minority stake, the two companies said in a statement.

At the same time, Foxconn is expanding production capacity in Vietnam, where it had already invested US$1.5 billion by 2021. Early last year, the Vietnamese government approved Foxconn’s bid to build a US$270 million plant in Vietnam for the assembly of notebook computers and tablets. The Taiwanese manufacturer reportedly set up the facility at the request of Apple, which aims to better mitigate the risks it faces from U.S.-China trade tensions.

When Apple shifts production outside of China, Foxconn often benefits. However, China remains the U.S. tech giant’s paramount manufacturing base. With that in mind, it could be harder for Foxconn in the long run to compete with Chinese manufacturers on their home turf, especially as Chinese leader Xi Jinping is focused on developing technological self-sufficiency. In December, online technology news site The Information reported that Apple in 2016 inked a secret five-year, US$275 billion investment deal with China, likely one of the reasons Luxshare and other Chinese suppliers have become a much bigger part of the California tech giant’s supply chain in recent years. Under the terms of the agreement, Apple promised to work with Chinese manufacturers to create “the most advanced manufacturing technologies.”

Meanwhile, the business environment for Taiwanese firms in China is becoming more difficult amid strained cross-Strait relations. In November, Chinese regulators fined two Chinese subsidiaries of Taiwan’s Far Eastern Group ¥88.6 million (US$13.9 million) for alleged environmental protection, fire safety, and taxation compliance violations.

Beijing may also have been sending a political message to the company, which has previously donated to campaigns in Taiwan of both Democratic Progressive Party (DPP) and Chinese Nationalist Party (KMT) candidates. China “will absolutely not allow people who support Taiwan independence or destroy cross-Taiwan Strait relations, who dare bite the hand that feeds them, to make money in the mainland,” Taiwan Affairs Office spokesperson Zhu Fenglian said in November.

To be sure, Foxconn is known for the strong relationships it has built up in China over its 35 years of operating in the country. The company and a charity run by its founder Terry Gou were able to secure millions of Pfizer-BioNTech vaccines for Taiwan last year through Shanghai-based Fosun Pharma, which has the rights to distribute them in China, Hong Kong, Macau, and Taiwan, after a deal involving the Taiwanese government and BioNTech fell through.

That said, cross-Strait relations are at their lowest point in decades, and to Taiwanese the possibility of war seems a little less remote following Russia’s invasion of Ukraine. Given Foxconn’s preference for discretion, it is difficult to assess its readiness for a sharp increase in tensions with China. However, the company “does have an ability to pivot quickly to changes in the operating environment, to invest large amounts of money quickly, and to retain the trust of its clients, which will be useful should tensions between China and Taiwan rapidly increase,” says Ross Darrell Feingold, a Taipei-based lawyer and political risk analyst.

Feingold is not sanguine about the prospects for cross-Strait relations in the years to come. Even if the KMT, which is viewed more favorably by Beijing than the DPP, wins the presidency and/or a majority in the legislature in 2024, “there is little reason to believe such would result in China changing its views toward Taiwan or its policies that put pressure on Taiwan,” he says. “Unless China renounces the use of force against Taiwan or Taiwan creates a military capability that deters China, tensions are likely to continue to increase.” Such a prospect could bode ill for Foxconn and other Taiwanese manufacturers with extensive operations in China.

(Source: https://topics.amcham.com.tw/2022/04/will-foxconn-pivot-away-from-china/

2021-10-13

Taiwanese Server ODMs Expected to Account for About 90% of Global Server Production in 2021 by Expanding Production Capacities Outside of Domestic China, Says TrendForce

Escalating trade tensions between the US and China, rising geopolitical issues, increased tariffs, and uncertainties stemming from the COVID-19 pandemic’s emergence last year have compelled server ODMs to actively shift their operations closer to clients as well as engage in risk mitigation strategies, according to TrendForce’s latest investigations. Taiwanese ODMs, in particular, are shifting their production bases away from domestic China and accelerating the installation of additional overseas production lines. TrendForce expects the share of servers manufactured in domestic China by global server ODMs to undergo a 7% YoY decrease this year as these ODMs shift their production bases mainly to Taiwan. Furthermore, Taiwanese ODMs are expected to account for about 90% of total server production this year.

On the other hand, server assembly operations, which are closely related to motherboard manufacturing operations, are also dynamically reserving their L6 capacities. Server assembly facilities located in New Mexico and the Czech Republic are gradually installing new production lines for server motherboards there. Inventec, Wistron (including Wiwynn), and Foxconn all currently possess sufficient motherboard manufacturing capacities for allocation as needed.

While future changes in the overall server supply chain remains to be seen, it should be pointed out that the migration of production bases pertaining to US companies is of particular importance. For instance, North American CSPs have requested their server ODM partners to migrate L6 assembly lines to locations such as Taiwan and Southeast Asia in response to potential geopolitical factors going forward. However, servers to be shipped to non-US regions will still be manufactured in China in accordance with prior plans. Aside from Google and Facebook, both of which have production lines in Taiwan, AWS and Microsoft have also transitioned their production lines to Taiwan.

Regarding major server ODMs’ current progress, most of them have installed new production lines in Taiwan, with Inventec, Wistron, Quanta, and Foxconn making the most headway. For instance, after installing three additional production lines in Guishan, Taoyuan at the end of 2020, Inventec currently operate a total of eight production lines, while Wistron has not only installed several spare production lines in the Southern Taiwan Science Park, but also planned to expand production bases in Southeast Asia at the end of 2021 for capacity allocation purposes. Quanta is aiming to capitalize on demand from 5G-related applications and data center build-outs by continually adjusting its production capacity for motherboards in Taiwan and Thailand. Finally, by expanding the physical capacity of its Taoyuan facility, Foxconn is able to avoid incurring tariffs for its North American clients’ L6 assembly operations.

2021-05-12

Foxconn Dominates ODM Server Market by Taking Nearly 50% of AWS/Azure Server Business

The “new normal” in the post-pandemic era has seen the meteoric rise of high-speed and high-bandwidth 5G applications, which subsequently brought about a corresponding increase in cloud services demand. As such, the global server shipment for 2021 will likely reach 13.6 million units, a 5.4% increase YoY. As commercial opportunities in white-box servers begin to emerge, Taiwanese ODMs, including Quanta, Wiwynn, and Foxconn are likely to benefit.

The prevailing business model of the server supply chain involves having the ODM responsible for the design, hardware installation, and assembly processes, after which servers are delivered to server brands (such as HPE, Dell, Inspur, and Lenovo), which then sell the servers to end-clients. In contrast, a new business model has recently started to emerge; this business model involves having server ODMs responsible for manufacturing specific and customized server hardware, available directly for purchase by such end-clients as cloud service providers, thereby bypassing brands as the middlemen.

With regards to market share, Foxconn accounts for nearly half of the total server demand from Microsoft Azure and from AWS, while Quanta accounts for about 60-65% of Facebook’s server demand.

According to TrendForce’s investigations, ODMs including Quanta, Inventec, Foxconn, Wiwynn, and QCT have all received server orders from clients in the cloud services sector in 1H21. In particular, both Quanta and Inventec received orders from Microsoft Azure, AWS, Facebook, and Google Cloud. With regards to market share, Foxconn accounts for nearly half of the total server demand from Microsoft Azure and from AWS, while Quanta accounts for about 60-65% of Facebook’s server demand, in turn giving Foxconn and Quanta the lion’s shares in the ODM market.

The aforementioned Taiwanese ODMs have been aggressive in growing their presence in the private industrial 5G network and edge computing markets, with Quanta subsidiary QCT being a good case in point as an ODM that supplies servers to both telecom operators and private industrial networks for these clients’ respective 5G infrastructures build-outs.

More specifically, QCT stated the following in a press release dated Jan. 4, 2021:

“Quanta Cloud Technology (QCT), a global data center solution provider, independently developed Taiwan’s first 5G standalone (SA) core network, which recently passed interoperability and performance verifications for 5G Open Network Lab operated by Taiwan’s Industrial Technology Research Institute (ITRI). The core network was successfully connected to partner radio access networks (RAN) and third-party user equipment, realizing end-to-end 5G signal transmission from edge to core and achieving significant acceleration in both uplink and downlink speeds.”

In response to the edge computing demand generated by global 5G commercialization efforts, Wiwynn recently released the EP100 server, which is a 5G edge computing solution compliant with the OCP openEDGE specification. Developed in collaboration with U.S.-based 5G software solutions provider Radisys, the EP100 can function as an O-DU or an O-CU depending on the various 5G RAN needs of telecom operators.

Furthermore, Wiwynn is continuing to develop the next generation of edge computing servers targeted at the enterprise networking and edge computing segments.

Foxconn, on the other hand, has been focusing on developing vertical solutions for private industrial 5G networks. Foxconn’s hardware infrastructure offerings include edge computing servers, TSN network switches, and gateways. The company also offers a slew of software solutions such as data management platforms and other apps, hosted by Asia Pacific Telecom. Last but not least, Foxconn recently announced an additional US$35.6 million investment in its Wisconsin project; this injection of capital will make the company well equipped to meet the demand for servers as well as 5G O-RAN and other telecom equipment.

(Cover image source:Pixabay)

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