Should Terry Gou for It?

Terry Gou, Foxconn founder and chairman, is contemplating a run for the presidency of Taiwan. Should he go for it?

Given his wealth – an estimated $7.8 billion – and stature in Taiwan, some comparisons to US President Donald Trump will be inevitable. There are distinct differences in upbringing and temperament, however. Gou is a self-made man, having launched Hon Hai as a components supplier in the early 1970s. He built the company brick by brick, expanding into new markets as opportunities arose, and taking advantage of mainland China’s proximity and low cost-model. When the West started looking for cheaper manufacturing alternatives, he was ready.

He has generally been media-shy throughout his career. It was only after Foxconn came under scrutiny as workers started jumping off its roofs that NGOs began putting pressure on Apple, Foxconn’s largest customer, and Western media took note. Long articles in The New York Times, Wall Street Journal and Forbes followed.

It has been reported Gou wants to bring a business- and China-friendly approach to Taiwan. That would in some ways run counter to the current president Tsai Ing-wen, which has given Beijing a colder shoulder. Her administration is coming under criticism for stagnant wages among Taiwan’s middle class, however, opening the door for a challenger.

But is Gou the guy? Whether his domineering approach will be welcome even in Asian cultures today is unclear. In the wake of the Enron collapse, in 2007 the WSJ quoted him as saying, “Even for those of us who lived through Enron, it’s hard not to come away disgusted. I always tell employees: ‘The group’s benefit is more important than your personal benefit.’ ” At the time, a typical mid-level assembly-line worker in Taiwan earned about $230 a month, including overtime pay, while Gou was a multibillionaire.

Neither is the inherent conflict-of-interest with China, where Foxconn has the majority of its manufacturing capacity and business interests and employs hundreds of thousands of residents. Taiwan’s self-styled independence stature could be in question were Gou come to office. How would he priorities decisions that could mean risking his financial standing?

Citing divine inspiration, Gou told media that he seeks “peace, stability, economy and future.” Those are worthy goals. Given his track record as an employer and his financial dependence on China, how he will achieve them deserves scrutiny.

Foxconn Whiplash

You are to be forgiven if you have whiplash from the multiple changes in direction of Foxconn last week. The world’s largest ODM and EMS company announced it was essentially pulling out of Wisconsin, scaling down its much publicized multi-million square foot campus in favor of a couple of small R&D centers. Then, after pressure from the US government, it quickly reversed course once again, saying the plans were still on.

Wisconsin taxpayers might feel a little like Charlie Brown getting the football yanked out from under him again. Not only does it look ever-less likely Foxconn will create anything close to the 13,000 local jobs it promised, but towns like Mt. Pleasant are already on the hook for hundreds of millions of dollars, the net effect of bonds it issued to pay for the initial construction. And if Foxconn doesn’t deliver, the state must pick up whatever the municipalities cannot pay back.

In any case, when it comes to Foxconn, actions speak way louder than words. Let’s wait to see whether anything actually gets built before commencing with the back-patting.

Steve Jobs’ Biggest Legacy?

The decision of Foxconn to enter the semiconductor manufacturing market gives additional heft to the premise that the US created a monster determined to swallow everything in its path.

As reported by Nikkei Asian Business today, Foxconn is working on a potential joint venture with its Sharp subsidiary to “invest” as much as $9 billion in the new plant, which would be the company’s first foray into IC development. (We put “invest” in quotes, because 1. the gulf between Foxconn’s reported investments and its actual investments tends to be oceanic in size and 2. in this case, the investment is reportedly coming from the Chinese government.)

Foxconn already is likely the world’s largest consumer of chips, so getting into the OEM business would cause reverberations among its major suppliers. Moreover, it returns us to the sad refrain: What is Foxconn’s end-game? The company dominates the electronics supply chain from boards to assemblies to box build, makes other components (connectors, displays, motherboards, etc.),
operates retail stores, invests in 5G … you name it.

Personally, I blame Steve Jobs. The iPhone was a revelation, for which Jobs deserves every ounce of credit he has received. But in looking for assemblers, he could and should have looked further than Foxconn. There simply is no major company in the electronics industry today that is more aggressive and yet has a worse record of worker treatment than Foxconn. I’ve worked in the industry since 1991. Foxconn remains the only company that I’ve ever received direct complaints from its employees about their treatment. (And that came from US workers. I can only imagine what their Chinese counterparts might say.)

And yes, I realize it was Michael Dell, not Jobs, who gave Foxconn and Terry Gou its entry into the US computer industry. But it was Apple that gave Foxconn its biggest stage, boosting the Taiwanese company from a third-party motherboard maker to a partner in the most revolutionary electronics device the world had seen to that point.

When criticized for his reliance on Foxconn, Jobs would fire back that the US didn’t have the engineers to build what Foxconn could build. But I don’t think it was an issue of talent, or availability. I think it was an issue of greed. Jobs couldn’t acquire the volume of talent needed at the price he wanted. Foxconn could.

And so that’s Steve Jobs legacy. Foxconn is a $150 billion company and growing. Its revenues are larger than any of its customers. And, being traded on the Taiwan Exchange, it has access to financial markets without the transparency of public companies in the US or Europe. A monster is present among us, and will eventually devour us all.

In Acquisition Mode, Foxconn is Turning Up the Heat

OEMs, beware: Foxconn is coming for you.

No, not just to buy your components, build your boards and run your logistics. Foxconn is coming for your data, your markets, and your customers.

We’ve been sounding the alarm about this for years. It’s not healthy for your primary supplier to be bigger than the nearly the entire rest of the market. Foxconn, pushing $150 billion in revenues, is as large as the next five EMS/ODMs combined, and more or less as large as numbers 7 through 500.

The 2016 buyout of Sharp could be chalked up to a desire by Foxconn to nab a key technology and supplier to Apple, it’s top customer. The just-announced deal for Belkin, however, coupled with its foray into developing 5G computing and cloud platforms,, suggest a drive to higher margin, branded products. Foxconn’s revenue is larger than almost everyone of its customers, and a new plan to issue $50 billion worth of stock could give it the capital it needs to go on a massive acquisition spree.

OEMs, beware.

The Bourse Identity

Foxconn’s prospectus to issue a public offering to raise money for its nascent foray in to cloud computing is less revealing for what it proposes than where the offering will take place.

Rather than leverage its newfound admiration in the US (or at least, in a couple pf offices in Washington) by accessing the Nasdaq or NYSE, instead Foxconn is opting for a far less prominent bourse: the Shanghai Exchange.

The reasons are obvious: The Shanghai bourse lacks the capital controls and oversight of the world’s dominant financial exchanges. A company, even one as large as Foxconn, can get away with a lot more, since reporting requirements and level of scrutiny are so less rigorous than in New York or Munich or London. Foxconn’s financial picture is opaque: even reporting on its revenues and profits remains an uncertain undertaking. Staying offshore makes that possible.

Finally, Shanghai is a Chinese exchange and Foxconn is a Chinese company. (Yes, I know it’s based in Taiwan. But look where the bulk of its facilities, workers, investment and attention is. And keep in mind that for many Taiwanese, China is still the motherland.) This latest move underscores that fact.

Trolling NY

Apparently someone has decided to toy with New York state by assuming the role of “Foxconn US” and trolling a poor soul named Chris Souzzi, who works for Genesee County Economic Development Center.

I’m no fan of Foxconn, and I don’t think there’s a snowball’s chance in hell they put a plant in the Empire State, but stunts like these aren’t funny (even if that’s what’s intended) and simply go too far.