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Trade War

Foxconn's $20bn projects in US and China hit by growth fears

Tech group weighs whether demand justifies extra capacity amid trade war

Foxconn's headquarters in Taiwan. The company's decision to delay work on factory-building projects in the U.S. and China comes at a sensitive time for both economies. (Photo by Ken Kobayashi)

TAIPEI -- Top iPhone assembler Foxconn Technology Group is putting production on hold at two flagship display projects in China and the U.S. worth a combined $20 billion as the trade war between the two countries raises uncertainty over demand, according to people familiar with the company's plans.

Foxconn will postpone most of the production planned in a 61 billion yuan ($9 billion) display panel project in the southern Chinese city of Guangzhou for at least six months, according to internal documents obtained by the Nikkei Asian Review. In the U.S., a $10 billion investment in display production in the state of Wisconsin has been suspended and scaled back as a result of negotiations with new Gov. Tony Evers, a Foxconn document obtained by Nikkei shows.

Foxconn's decision to delay work on the two factories throws into doubt the promise of fresh investment and employment at a sensitive time for both economies. China's economic growth has slowed to a 28-year low, while in the U.S., President Donald Trump continues to seek wins on his vow to bring manufacturing jobs back to America.

"Foxconn decided to slow the investment pace and scale back a bit at the moment because of weakening macroeconomic conditions and the uncertainties brought by the trade war," a person with knowledge of Foxconn's decision told Nikkei.

"If Foxconn expands as planned regardless of the rapidly changing market dynamics, it could eventually hurt the company's business. It's much safer to wait and carefully reconsider the next step," the person added.

Foxconn's moves to hold up planned investments come after the company took cost-cutting steps that included shedding 100,000 workers by the end of 2018. The business climate is even chillier now that top customer Apple delivered a shocking revenue downgrade in January, citing slowing Chinese sales.

Foxconn said in a statement to the Nikkei Asian Review that the Guangzhou project was on schedule.

"Next month we will commemorate the installation of the first Exposure System in Guangzhou," the company said. "Further updates will be shared in due course."

The investments by Taiwan-based Foxconn, which trades as Hon Hai Precision Industry, were accompanied by much fanfare when they were announced in December 2016 and July 2017, respectively.

The Guangzhou project, run mainly by a joint venture of Foxconn and its subsidiary Sharp, harnesses the Japanese company's liquid crystal display technology. It marks Foxconn's most advanced LCD factory in China, positioning it to serve a vast market and better compete with top Chinese display maker BOE Technology Group.

The plant is supposed to produce state-of-the-art 10.5-generation LCD panels for ultrahigh-definition 8K TVs as well as automotive and aviation uses. The investment received great support from local government at the time, taking only 60 days from signing the 61 billion yuan deal to breaking ground in March 2017.

But under Foxconn's revised timetable, only 20% to 25% of the planned monthly capacity will go into operation in the third quarter of this year. The rest of the planned capacity will be pushed back six months to 2020 owing to market uncertainty, two industry sources confirmed. Production at the Guangzhou site was previously scheduled to begin by the second half of 2019.

The company decided to delay the Guangzhou project because Sakai Display Products, an advanced panel factory in Japan under Foxconn's control, is currently suffering a low utilization rate, a person with direct knowledge of the matter told Nikkei. "If the existing plant is not running at full capacity, why should Foxconn expand that aggressively?" this person added.

In the U.S., Foxconn's $10 billion project in Wisconsin -- one of the biggest foreign investments in the country -- had a high-profile groundbreaking last June attended by Trump, who called Foxconn Chairman Terry Gou "a friend of mine, one of the most successful businessmen in the world."

But since then, teams from Sharp and Foxconn display subsidiary Innolux sent to Wisconsin to support the program have been recalled to Japan and Taiwan, two sources told Nikkei.

The changes to the construction schedule follow last November's election defeat of Republican Gov. Scott Walker, a Trump ally who backed nearly $4 billion in tax breaks and other incentives for the project, people familiar with the matter said. Incumbent Gov. Evers, a Democrat, approached Foxconn to renegotiate some of the side deals his predecessor made with the company, three sources told Nikkei.

In a statement dated Jan. 19, Foxconn said it has invested over $200 million to date in Wisconsin but it will not receive tax breaks from the state government for 2018 after missing hiring requirements. "While Foxconn remains committed to creating 13,000 jobs in Wisconsin, we have adjusted our recruitment and hiring timeline," the company said. "As a company with operations around the world, we need to have the agility to adapt to a range of factors, including global economic conditions," it added.

Foxconn does not plan to abandon the $10 billion project entirely, only halt it for further evaluation and discussion with the new governor, one of the sources said.

Local leaders in Racine, where Foxconn's facility is built, issued a joint statement on Thursday, said they understood the challenge. "Foxconn must be nimble in responding to market changes to ensure the long-term success of their Wisconsin operations," they said. However, they added that they expected the company would "meet its obligations to the state, county and village."

Foxconn special assistant to chairman, Louis Woo, on Wednesday told Reuters that the company is reconsidering plans in Wisconsin, citing steep costs of TV manufacturing and labor in the U.S.

This is not the first time that Foxconn has altered its plans for the Wisconsin investment, dubbed Project 868 internally, since it was first announced at the White House in July 2017. Instead of building what would be the company's second 10.5-generation LCD panel factory after the Guangzhou site, Foxconn downgraded the project to sixth-generation technology for smaller displays. The company confirmed the change in plans to local media only days before the groundbreaking last June. Nikkei first reported on the move in May.

Foxconn on Thursday confirmed the adjustment of its Wisconsin plans amid the changed global outlook, but said it remained committed to"the creation of 13,000 jobs, and to our long-term investment in Wisconsin."

The company would continue to "actively consider opportunities for [LCD] technologies in terms of maximizing the positive impact of our Wisconsin project" while also examining potential for research and development in "advanced industrial internet technologies."

(The original story was revised to clarify that most of Guangzhou's production will be deferred.)

Nikkei staff writers Kensaku Ihara in Taipei and Gen Nakamura in Osaka contributed to this article.

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