Foxconn investing US$400m on new plants overseas in bid to boost profits
Foxconn International Holdings, a Taiwanese mobile-telephone manufacturer, plans to make a major push into emerging markets even though its margins are likely to suffer as a result.
The company is building factories in India, Brazil, Mexico and on the mainland, part of a capital-spending spree that will see investment soar 33 per cent this year to US$400 million.
Its China factory began production in the second quarter and the Indian operation will come on stream in August.
The new operations should boost profits next year and in 2008.
'In the next 18 months, the huge growth of the mobile-phone market [will be] in emerging countries,' said Samuel Chin Wai-leung, Foxconn's chairman and chief executive.
Given lower incomes in those markets, the bulk of the sales increase will come in low-end products that are less lucrative for equipment suppliers such as Foxconn. Mr Chin insisted the firm would do its best to maintain profit growth at last year's levels.
'Everything has an impact on margins, so we have to monitor as much as we can ... and focus on the areas where we can overcome the pressure,' Mr Chin said.
'Low-end [products] can still generate revenue and can still generate business. To me, [being low-end] does not matter.'
Investors may not share his sanguine view. Foxconn's shares fell 7.96 per cent yesterday, closing at $16.75, down $4.05 from their record high on May 30 but still well above last year's initial public offering price of $3.88.
To ease the profit pressure, the company will continue to push sales of high-end phones in Hungary and replacement phones in Taiwan.
The company's orders so far this year were increasing at double digits, Mr Chin said. He expects further gains in the second half.
He said Foxconn was looking for an acquisition that would boost its after-sales service business and brought in a Korean design team recently to help expand its original design manufacturing business.
The company has US$360 million in cash on hand and has lined up US$1.6 billion of bank credit, sufficient to meet its funding needs this year and next.