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Trade war

Key Apple suppliers ready more non-China production

Foxconn and Quanta see no end in sight for ongoing trade war

Foxconn has manufacturing facilities in 16 countries, but 75% of capacity is in China, a worrying situation as the threat of more U.S. tariffs looms. (Photo by Ken Kobayashi)

NEW TAIPEI CITY/TAOYUAN, Taiwan -- The world's two largest contract electronics suppliers, Foxconn and Quanta Computer, said on Wednesday that they will continue to move production capacity out of China to cope with the protracted trade war.

"The U.S.-China trade war is very dynamic and our clients are monitoring the situation closely," Foxconn Chairman Young Liu told reporters. "We have to be well prepared and expand capacity at the fastest pace when our clients make decisions [to move]."

Formally traded as Hon Hai Precision Industry, Foxconn's other key clients include China's Huawei Technologies, Google, Amazon and Tesla. The company makes a wide range of goods such as smartphones, PCs, servers and electronics components, many of which have been hit by Washington's tariffs.

Foxconn has manufacturing facilities in 16 countries, but 75% of its capacity is in China. It is the country's largest employer and exporter. But now the company's decadeslong production portfolio has begun to change owing to the trade tensions.

"Our capacity in China has slightly declined and we increased some in overseas facilities," Liu said. "Taiwan ... India, Vietnam and Wisconsin are strategic to us," he added.

Foxconn has been announcing investments in India and Vietnam worth 11 billion New Taiwan dollars ($360 million) and NT$6.3 billion, respectively. Last month the company said it would double server production capacity in Taiwan.

The U.S. and China are currently finalizing the first phase of an agreement that will resolve some trade issues. However, President Donald Trump repeated threats on Tuesday that his administration could "substantially raise tariffs" on Chinese goods if an acceptable deal is not reached.

Many other electronics manufacturers are also preparing for the worst as the rocky trade negotiations drag on, readying to shift production outside China if talks break down completely.

Quanta Computer, a key Apple MacBook maker and builder of Google and Facebook data center servers, has also allocated some production to two new sites near its headquarters in the Taiwanese city of Taoyuan. The company also increased final assembly work on server-related products in its two existing U.S. sites in Tennessee and California, Quanta's CFO Elton Yang told reporters on Wednesday.

Quanta had already announced in October that it would spend NT$1 billion to buy a facility in Thailand.

"Most customers need a plan B in case high tariffs eventually come ... so we are getting ready for all of these likely scenarios," said Yang. "Once our customers say 'Yes,' we could quickly increase production in Taiwan and later in Thailand."

None of the executives speaking on Wednesday expect U.S.-China tensions to ease soon.

"Looking forward a few years into the future, we think the new technologies -- including 5G and artificial intelligence -- will be the new battlegrounds for big countries," said Quanta Chairman Barry Lam. "The competition will not stop, but will become fiercer," he added. "[5G and AI] are deeply linked to national security, national power and national defense."

The executives' remarks came as both Foxconn and Quanta reported strong earnings for the September quarter.

Foxconn's net profit climbed more than 20% on year and 80% on quarter to NT$30.7 billion, beating market expectations of NT$27.9 billion. For the third quarter, Quanta sees operating profit growing more than 25% from a year ago to NT$5.6 billion on revenue of NT$265.1 billion -- a decline of 6% year over year -- as it begins to focus on higher-margin items such as data center products rather than labor-intensive consumer electronics.

The company's earnings marked the first three-month performance after Foxconn founder Terry Gou stepped down from the helm after more than 40 years to play a more active role in politics.

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