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Return of the 'Tiger': Gou to lead Foxconn as investor-in-chief

Founder eyes Softbank-style fund for Apple supplier

Foxconn founder Terry Gou prays at a temple in New Taipei City, Taiwan, during the presidential elections. (Photo by Akira Kodaka)

TAIPEI/OSAKA -- Foxconn founder Terry Gou is returning to the company's leadership seven months after he stepped down to pursue a bid to become Taiwan's president, despite insisting he would never return to management.

The Apple supplier is now approaching the limits of its current business model, which involves assembling iPhones and other products for outside clients. Gou sees a fund similar to SoftBank Group's $100 billion Vision Fund as the key to continue expanding his business empire, but the way forward is far from clear.

"I will become the tiger that leads Hon Hai," Gou told more than 30,000 people at a company gala in Taipei on Jan. 22, referring to the company's formal name, Hon Hai Precision Industry. The Lunar New Year party was one of the few times he appeared in public as a company executive since he quit as chairman in June, although he remained on Foxconn's board.

His address at the event signaled he is now returning with full force to the company, which has grown into the world's largest contract manufacturer with over $170 billion in annual sales. But he also touched on his failed presidential run, hinting at his continued interest in the political arena.

Gou is expected to keep his successor, Chairman Young Liu, in charge of day-to-day management. He instead will focus on launching a global fund that will invest in technology companies from the U.S., Japan, Germany and Israel, which he envisions as a driver for the group's future growth.

The mogul is drawing inspiration from SoftBank, which under Chairman Masayoshi Son has shifted its focus from mobile services to fund management. Foxconn is an investor in the SoftBank Vision Fund, and Gou says he and Son are so close they are "just a phone call away." Gou has not announced details of the Foxconn fund, but the two executives will likely coordinate investment strategies.

The surprise proposal for the fund comes as Foxconn struggles to continue growing. The company posted record net profits for six straight years through 2016. But market watchers expect the company suffered a third year of declining profit in 2019, due to a saturated smartphone market and rising wages in China.

With contract manufacturing no longer as profitable as it once was, Foxconn is pressed to find new business models. But investment funds come with their own challenges. Many once-promising startups have been found to be grossly overvalued since last year, such as WeWork operator We Co.

Foxconn Chairman Young Liu, center, and Terry Gou at the company's Lunar New Year party in Taipei on Jan. 22. (Photo courtesy of Foxconn)

Foxconn's other attempts to branch out have not been very successful. It shocked markets on Jan. 16 when it announced that it will develop electric vehicles through a joint venture with Fiat Chrysler Automobiles. But FCA immediately issued a statement saying there is "no assurance that final binding agreements will be reached," tempering expectations.

Sharp, which Foxconn acquired in 2016 as part of its shift away from contract manufacturing, is struggling to lift its net profit ratio significantly above 3%. Its share price has not changed much since 2016.

Shadows loom over Foxconn's plans to build multibillion-dollar liquid-crystal display factories in the U.S. and in China. The U.S. factory, which Gou announced in 2017 with U.S. President Donald Trump at his side, is now expected to be much smaller than originally planned. This month, U.S. public broadcaster NPR reported on the lack of 13,000 jobs promised by Foxconn at the planned plant in Wisconsin.

The market appears unimpressed by these efforts. Foxconn's stock price remains about 40% lower than its record high from 2017, and investors were cool on Gou's fund proposal.

"Foxconn's future success depends on whether Gou and his successor, Liu, can effectively split their roles and make smart decisions about business," a Taiwanese analyst said.

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