Monday, September 6, 2010

Foxconn Chairman Gou Cuts Target 50% as Slump in PCs Outweighs Apple Sales‏


Foxconn Technology Group Chairman Terry Gou cut his long-term growth target for the world’s largest contract manufacturer of electronics by 50 percent as demand for Apple Inc. iPhones and iPads fails to offset slowing computer sales.

Gou, who founded the Taiwanese company in 1974, will tell managers that he’s lowering Foxconn’s annual sales growth target to 15 percent from the 30 percent fixture set for more than a decade, Taiwan’s richest billionaire said.

“How many companies have grown this big and still grow 30 percent?” Gou, 59, said in an interview at his office in Shenzhen, China on Sept. 4 for Bloomberg Businessweek’s next edition. “Fifteen percent is also big.”

Foxconn’s flagship unit, Hon Hai Precision Industry Co., fell in Taipei trading and JPMorgan Chase & Co. cut its rating on the stock, citing concerns over growth. The reduced target, like the spate of suicides that’s kept him in Shenzhen since May, may underscore the challenges of managing a $60 billion business that generates more sales than Apple or Dell Inc., and employs almost 1 million workers.

“I don’t think investors are ready to hear news of such a big cut in the growth target,” said Vincent Chen, who rates shares of Hon Hai “hold” at Yuanta Securities Co. in Taipei. “These problems, including lower market growth, are giving Gou the biggest challenge he’s ever faced.”

Underperforming Stock

Hon Hai dropped 2.7 percent to NT$108.50 as of 9:03 a.m. in Taipei. The stock’s fallen 20 percent this year, underperforming the island’s Taiex Index, after the deaths of at least 10 workers led Gou to raise wages and accelerate factory relocation plans in China. The stock’s tripled this decade, giving Hon Hai a larger market value than electronics companies such as Sony Corp. or Panasonic Corp.

Worldwide growth in shipments of computers, Foxconn’s main business, will slow to 12 percent in 2011 from 18 percent this year, according to estimates at Taipei-based Capital Securities Corp.

Gou, who’s run Foxconn since its founding, said he has a succession plan that may be announced in three years. He plans to keep his job until his 1-year-old daughter gets married, the chairman said.

Gou founded Hon Hai as a maker of plastic television knobs with $7,500. By March, his wealth had soared to $5.9 billion, making him Taiwan’s richest man, according to Forbes Magazine.

Bigger Than Apple, Dell

Gou said he expects sales to meet the 30 percent growth target this year as customers recover from the global recession. Revenue at Hon Hai Precision Industry Co., Taipei-based Foxconn’s flagship unit, will increase 39 percent to NT$2.72 trillion ($85 billion), according to the average of 18 analyst estimates compiled by Bloomberg.

Those sales would trump those of Gou’s customers. Analysts forecast $63 billion for Apple, $62 billion for computer-maker Dell and the $54 billion for mobile-phone producer Nokia Oyj, according to average estimates compiled by Bloomberg.

Gou is considering biotechnology companies as acquisition targets, though he’ll slow Foxconn’s pace of purchases, he said, declining to identify any company names. Foxconn is also planning to expand in industries such as nanotechnology and media content, he said.

Still, Foxconn plans to drive growth mainly through internal expansion after overpaying for some acquisitions, he said.

More Conservative

“If I merge or acquire, I will be more conservative in what I need and what I really get from it,” Gou said. “On one company, I spent too much money to acquire it, then realized my internal knowledge is better than their internal knowledge.”

Hon Hai has spent $3.1 billion in the past decade on acquisitions, the biggest being its 2006 purchase of Taipei- based camera maker Premier Image Technology Corp. for $1.2 billion in stock, according to data compiled by Bloomberg. Innolux Display Corp., Foxconn’s liquid-crystal display unit, this year bought Chi Mei Optoelectronics Corp. and TPO Displays Corp. to form the world’s third-largest LCD maker.

“Without acquisitions, it will be hard for them to grow,” said Calvin Huang, who rates Hon Hai “underperform” at Daiwa Securities Group Inc. in Taipei. “They have new businesses, but their contributions are still too small to drive much growth.”

Coping with Suicides

Gou said he’s been spending most of his time over the past three months coping with the worker suicides, which prompted Foxconn to announce a doubling of wages at his largest facilities and relocate factories to inland China near the hometowns of his migrant workforce.

Foxconn said last month it may hire as many as 400,000 workers, more than triple the combined workforces of Microsoft Corp. and Apple, and boost its number of employees to as high as 1.3 million.

Gou said he’s considering building a fully-automated factory in the U.S. as part of plans to expand production in the country and reduce Foxconn’s reliance on labor. The company, which currently assembles computer servers in Houston, Texas, will probably make components and finished products at factories in the U.S. within five years, he said.

“If I can have automation in the U.S., then ship to China, the cost-price would still be competitive,” Gou said.