Apple-supplier Foxconn Mulls $7 billion US Investment

Chinese firm to set up display plant that could create about 30,000 to 50,000 US jobs

Terry Gou, Chairman and CEO of Taiwan’s Foxconn Technology Group, which manufactures most of Apple Inc.’s (NASDAQ: AAPL) blockbuster product iPhone and other products, is considering setting up a display-making plant in the US with an investment of over $7 billion, as reported by Reuters on January 22nd, 2017. The plans come after US President Donald Trump, who assumed office on January 20th, 2017, pledged to put “America First” in his inauguration speech. Trump has promised to create one million US jobs in the next five years. Trump, who made bringing back manufacturing to the US a large part of his successful election campaign, has been pushing manufacturing companies to ramp up their investments in the US, even while threatening to slap outsourcing firms with a 35% import tax.

Foxconn’s plan to invest in the US comes at a time when several US manufacturers, including General Motors Company (NYSE: GM) and Ford Motor Co. (NYSE: F), are bringing back manufacturing jobs to the U.S., highlighting the rise of protectionism measures. The decision to increase US manufacturing is potentially a response to Trump, who has threatened to renegotiate the North American Free Trade Agreement (NAFTA) as well as make it expensive to import Chinese goods. Trump has also blamed China for stealing American jobs and hurting the US manufacturing sector.

Will Apple bring back iPhone manufacturing to US?

Trump has claimed that Apple CEO Tim Cook could bring iPhone manufacturing to the US, luring the technology giant with promises of tax cuts for relocating jobs. In November 2016, Apple had asked Foxconn and Pegatron, the two tech firms responsible for assembling more than 200 million of Apple’s iPhones annually, to consider the feasibility of building plants in the US. Such a move would also bring manufacturing closer to the largest market for iPhones and iPads, a potential advantage for Apple, which accounts for about half of Foxconn’s revenue. The new plant to be set up in the US could also be built as a joint investment with Apple.

However, Foxconn is one of the single largest private employers in China and the government there has expressed concern over the shift in investment away from the country. Gou has categorically stated that Foxconn would remain active in China, where it employs close to a million workers thanks to cheap labor and central policy support.

Foxconn has been prompted to announce its US investment after its business partner Masayoshi Son, head of Japan’s SoftBank Group Corp., talked to Gou before a meeting in December 2016 with Donald Trump. As a result of the meeting, Son pledged a $50-billion of investment in the US aimed at creating about 50,000 jobs and inadvertently disclosed information showing Foxconn’s logo and an unspecified additional $7 billion investment.

Foxconn is also considering a joint investment with Sharp Corp., the Japanese display supplier that it acquired in 2016. While the US has no panel-making industry, it is the second-largest market for televisions. Hence, the display plant could create about 30,000 to 50,000 jobs. Foxconn has existing operations in Pennsylvania, which is a state Foxconn would prioritize, depending on land, water, power, infrastructure and other investment conditions.

Gou has urged the US government to offer concessions on land and electricity to encourage manufacturing, warning that products could otherwise become unaffordably expensive due to currency values as well as higher labor and operational costs. On the brighter side, Gou claimed that growing demand for bigger display panels makes US production a better option than importing parts from China. Foxconn is also said to be planning a new molding plant in the US, with Pennsylvania being a possible target in the wake of investment talks with the state.

Apple invests $1 billion in SoftBank’s tech fund

Earlier on December 12th, 2016, Apple invested $1 billion in a $100 billion tech fund being raised by SoftBank. The other potential investors in SoftBank’s tech fund are Foxconn and Qualcomm Inc. (NASDAQ: QCOM), which supplies smartphone chips for Apple’s iPhone.

The investment assumes significance since Apple and SoftBank have already been business partners since nearly a decade. SoftBank’s Masayoshi Son is also close to Foxconn’s Terry Gou. In July 2016, SoftBank bought UK-based microchip manufacturer ARM Holdings PLC, a major supplier of microprocessors for the iPhone.

While Foxconn’s move to shift manufacturing to the US may prove to be politically correct, an iPhone made in the US could retail for as much as $740 to $1,300 for a 32GB iPhone 7 versus $650 today, due to logistics costs for shipping parts and non-availability of natural resources. However, many companies say that they are prompted to change their existing strategies to avoid being targeted by the new government or gain bad press that could affect investors.

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