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Foxconn to build new Huawei smartphone factory in western China

Foxconn will be producing Huawei smartphones in Guizhou.

TAIPEI -- Taiwan's Foxconn Technology Group, the world's largest contract electronics manufacturer, is building a new factory for Huawei Technologies in southwestern Chinese province of Guizhou. While the Taiwanese assembler, known locally as Hon Hai Precision Industry, seeks to take advantage of lower labor costs in one of the poorest regions of the country, the Chinese telecom hardware company intends to cement its top position in the domestic smartphone market this year by boosting low cost handset supplies.

Three sources told the Nikkei Asian Review that Hon Hai is building a new assembly facility to accommodate Huawei's expanding business.

"Huawei will become a very important client for Foxconn this year and the new facility is an important project for Foxconn as Apple growth slows down while Huawei is enjoying robust growth," a person familiar with the matter said.

Another said that Foxconn is choosing Guizhou because Huawei founder and chief executive Ren Zhengfei was born in the province.

Huawei is a major Chinese client for Foxconn's Hong Kong-listed subsidiary FIH Mobile, which also manufactures phones for its competitors Xiaomi and Oppo.

Meanwhile, Foxconn has been bolstering its operations in Guizhou over the past few years as a result of cheaper operating costs in China's inland provinces. Foxconn has been building and expanding its low heat emission data centers in the province since 2014, and the Taiwanese manufacturer is also working with local authorities to provide free public WiFi services in Guiyang, the capital of Guizhou.

Foxconn Chairman Terry Gou is due to make an appearance at a tech expo in Guiyang this week, and he is expected to check on the progress of the new facility too.

On the other hand, Xiaomi, once the supreme Chinese smartphone brand, continues to languish further in 2016 with shipments expected to decline year-on-year for the first time, people familiar with the industry told the Nikkei Asian Review.

Xiaomi CEO Lei Jun unveils the Hongmi Note 2 in Beijing.

The contrasting fortunes of Huawei and Xiaomi are testament to the volatility of the Chinese smartphone market for the companies engaged in cut throat competition over market share. Smartphone brands are further challenged by softening global demand and the economic slowdown in China.

Foxconn's shipments of Xiaomi handsets will drop about 10% in 2016 from the previous year, according to a person familiar with the matter. Another source said the Chinese smartphone maker is also cutting back on second-half orders from its other assembler, Taiwan's Inventec Group.

Huawei and Xiaomi did not respond to requests for comment from the Nikkei Asian Review, while Foxconn declined to comment. A senior executive at the Inventec Group said that "demand for Xiaomi's handset is still stronger than supply" without providing concrete numbers.

"If there is any shipment issue, the reason must be that component suppliers have trouble providing parts," the Inventec executive said.

As recently as 2014, Xiaomi surpassed Samsung Electronics, Lenovo Group, Coolpad Group and Huawei to top the Chinese smartphone market for the first time, according to U.S. research firm International Data Corporation. Xiaomi's success has largely been attributed to its viral marketing campaigns and online sales channels.

Xiaomi maintained its leadership in the Chinese market last year with 64.9 million handsets shipped, versus second-ranked Huawei's 62.9 million, according to IDC's data, although globally Huawei sales have been stronger.

However, Xiaomi's 2015 shipment, around 70 million in total, were a disappointment in the wake of chief executive Lei Jun's forecast of 80 million to 100 million units for that year. According to IDC, only three smartphone makers shipped more than 100 million units globally last year: Samsung, Apple and Huawei.

Huawei has also bested Xiaomi in the domestic market for two straight quarters since the three-month period through December 2015, IDC data showed.

Wang Yanhui, secretary-general of the Mobile China Alliance industry association, said that Xiaomi will face a challenging year in 2016.

"The main problem for Xiaomi is the lack of both a good partnership with operators and a shortage of brick-and-mortar stores to sell its products. Meanwhile, Xiaomi is lagging behind Huawei because the latter offers better hardware," Wang said.

"It's not likely that Xiaomi will replace Huawei and return to the number one spot in China, though Xiaomi is likely to remain a top-tier player in China," he added.

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