Foxconn Tries to Move Beyond Apple’s Shadow

But now Foxconn, a potent symbol of the perks and perils of globalization, is taking a step that, not all that long ago, would have seemed unthinkable: it is contemplating life far, far beyond Apple.

Foxconn, which is based here but does most of its manufacturing in mainland China, wants to reduce its reliance on Apple. Its new strategy is a shift away from making products that other companies design, and toward developing products of its own, with an especially aggressive push into designing and manufacturing large, flat-screen televisions.

“Foxconn senses that the Apple aura isn’t as invincible as before,” said Jamie Wang, an analyst at the research firm Gartner. “So they are worried that they need something besides Apple’s business that will allow them to grow.”

As the biggest contract manufacturer for American electronics companies like Apple, Dell, Hewlett-Packard and Amazon, Foxconn has been faced with labor unrest, worker suicides, industrial accidents and complaints about working conditions and labor practices. It has been working with many of its client companies to improve conditions, raise pay and improve labor standards. On a drizzly April afternoon at the headquarters of Foxconn Technology here, 300 employees gathered to burn incense and fake money in front of a statuette of Lord Guan, a Taoist deity. Mr. Gou, the chairman of Foxconn and a Taoist, had the statuette flown in from Shanxi Province in mainland China, carrying it himself to the door of his manufacturing empire. In Chinese tradition, Lord Guan is considered the go-to god for good business.

Good business is something Foxconn, one of the world’s largest contract electronics manufacturers, needs right now. Last month, Foxconn, also known as Hon Hai Precision Industry, reported that first-quarter revenue was dragged down 19.2 percent compared with the same period last year because of declining iPhone and iPad orders from its main customer, Apple.

Apple representatives declined to comment on the developments at Foxconn. But analysts estimate that Apple contributes at least 40 percent of Foxconn’s revenue. Moving beyond Apple could prove tricky; it is hard to make money in televisions these days, as many of the Japanese electronics companies can attest. And only 20,000 of Foxconn’s 60-inch TVs have been sold in Taiwan, according to Simon Hsing, Foxconn’s spokesman, who declined to disclose sales volumes from any other partners.

Foxconn’s predicament mirrors a common problem faced by Taiwanese contract manufacturers, whose fortunes depend heavily on those of their clients. A handful of manufacturers, like HTC and Asustek Computer, have managed to shed their contract manufacturing businesses altogether to develop branded products. But as they began competing with clients, those clients began deserting them.

Here is Foxconn’s problem captured with two sets of statistics. Global demand for LCD televisions declined 1 percent in 2012 compared with the previous year, and demand for all TVs dropped 6 percent, according to NPD DisplaySearch. Worldwide PC shipments fell 13.9 percent in the first quarter of 2013, compared with the same period a year earlier, according to IDC.

As a result, profits for many manufacturers are slumping.

“Taiwan companies have always relied on being a contract manufacturer and outsourcing manufacturer,” said Luo Huai-jia, vice president at the Taiwan Electrical and Electronic Manufacturers’ Association. “Now we need to start looking at original design manufacturing and directly matching the needs of consumers.”

Kay Chiu, vice president of Foxconn’s consumer electronics division, said in response to e-mailed questions that consumer interest and vertical integration — controlling all the steps in the supply chain — were behind the shift in production. “We still need to leverage business development partners’ advantage to provide an attractive and most competitive product to the market,” Mr. Chiu said. Other top Foxconn executives declined several requests for comment.

Article source: http://www.nytimes.com/2013/05/07/business/global/foxconn-tries-to-move-beyond-apples-shadow.html?partner=rss&emc=rss