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Foxconn says US and China in 'war of tech'

Key iPhone assembler looks beyond Apple as handset industry slows

Hon Hai Precision Industry Chairman Terry Gou speaks during its annual shareholders meeting in Taiwan on June 22. (Photo by Ken Kobayashi)

NEW TAIPEI CITY, Taiwan -- Key iPhone assembler Hon Hai Precision Industry, also known as Foxconn Technology Group, is putting its faith in industrial internet-based solutions as the company's new long-term growth driver, and looking beyond Apple as the slowing smartphone industry slows.

"We are in the process of corporate transformation. The industrial internet-centric business will be a success," Foxconn Chairman Terry Gou told shareholders during the company's annual general meeting on Friday.

The transition comes at a time of hightened tensions between the U.S. and China, two critically important locations for Foxconn. 

The recent spat between the world's two largest economies was not about trade issues, but about "a war of tech manufacturing," Gou said. He said he has been monitoring the situation closely and disclosed that Foxconn's management team is drafting contingency plans to quickly respond to any development.

The Taiwanese manufacturing giant started as a component maker in the 1970's and gradually became the world's largest contract manufacturer, with an annual revenue of 4.07 trillion New Taiwan dollars ($134.32 billion) in 2017. It is the biggest iPhone assembler and Apple contributes more than 50% of Foxconn's annual revenue.

As the era of fast growth in the global mobile industry has passed, Foxconn has been developing in new businesses, such as cloud-computing platforms and networking equipment, to compensate for the slowness of handset sales. But it is taking time for the transformation to bear fruit. Foxconn suffered a 6.67% year-on-year decline in net profit to NT$138.73 billion in 2017, followed by a 14.18% drop in net profit to NT$24.08 billion in the quarter ended on March 31 this year.

"We invested heavily in research and development last year for the long-term growth catalysts. Volatile foreign exchange also took a toll on us," Gou said, bowing and apologizing to shareholders for Foxconn's shrinking net income.

Gou said nevertheless that Foxconn's revenue climbed more than 8% on the year to NT$1.71 trillion in the first five months of this year. "We are not just depending on the major client, our cloud computing and internet of things business also supported the increase."

He said the company's subsidiary Foxconn Industrial Internet (FII), which debuted on the Shanghai Stock Exchange on June 8, provides artificial intelligence solutions that focus on raising manufacturing efficiency.

The technologies provided by FII would help Foxconn -- with operations in more than 10 countries and more than 1 million employees around the world -- to transform into a tech platform company in the next three years, Gou said. "The next three years are too important to Foxconn. I won't be retiring from the company in five years," he added.

It will take time for the capital markets to understand FII's business potential, Gou said, referring to its recent sluggish stock performance. Shares of FII recovered 3.03% to 18.72 yuan in Shanghai on Friday, after falling for six consecutive trading sessions.

The trade spat between the U.S. and China also affected FII's stock price, Gou said.

Foxconn -- whose production bases are mainly in China but which is to invest $10 billion in the U.S. over the next four years -- is an independent company that does not rely on any country's subsidies for corporate growth, Gou said. "We can operate business around the world without being controlled by anyone, because we highly depend on our own [resources]."

Gou will host the groundbreaking ceremony for Foxconn's manufacturing park in the state of Wisconsin in the U.S. on June 28. It is believed that U.S. President Donald Trump will attend the event, as the $10 billion investment is one of the first responses by a foreign company to his call to manufacture more in the U.S.

Gou said he will stay in the U.S. for three weeks after the ceremony and visit "three to four states" to meet "dozens" of companies regarding potential investment or acquisitions related to artificial intelligence technologies.

More than 1,000 shareholders attended the group's four-hour annual general meeting. Gou spent two hours signing autographs and being photographed with more than 200 shareholders after the meeting.

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