Foxconn is preparing to spend 60 billion to build a chip factory in Zhuhai, but most of the money is not its own

Home > Sci-Tech

Foxconn is preparing to spend 60 billion to build a chip factory in Zhuhai, but most of the money is not its own

2018-12-25 20:25:17 145 ℃

The Nikkei News quoted people familiar with the matter as saying that Foxconn is negotiating with Zhuhai and intends to invest about $9 billion in local resources. 60 billion yuan) to build a chip factory.

The new facility will produce chipsets for ultra-high definition 8K TV and camera image sensors, as well as sensor chips and devices for a variety of industrial applications. The ultimate goal is to build a 12-inch chip factory, manufacture chips for robots and self-driving cars, and plan to compete directly with top companies in the foundry industry such as TSMC, Samsung Electronics, Globalfoundries, and others.

The plant plans to start construction in 2020, but people familiar with the matter said the project may be postponed or changed due to political factors, and the other party did not specify what kind of political factors.

Foxconn has long been known as an assembly factory for Apple hardware products such as the iPhone. Last year, revenue from Apple accounted for half of Foxconn's total annual revenue of $152.65 billion. This year, due to Apple's successive downward adjustments to the sales expectations of three new iPhones and the shrinking of orders, many supply chain companies including Foxconn have been implicated.

But building a chip factory is not easy for Foxconn. Foxconn's only subsidiary with experience in chip manufacturing is Sharp, which it acquired in 2016, but the company stopped developing semiconductor technology due to financial problems as early as 2010. Foxconn also has four other subsidiaries related to the chip business, such as Marketech International, but the scale is relatively small.

The Nikkei News quoted market observers as saying that entering the chip manufacturing industry is costly and requires at least tens of thousands of chip experts. Mark Li, an analyst at Bernstein Research, said, "Building and operating a chip factory requires a long-term experience. For Foxconn, getting involved in the chip manufacturing business overnight is very challenging. It requires long-term investment to drive technology to achieve profitability."

"And, it is difficult for Foxconn to recruit so many chip engineers in a short period of time," Mark Lee said.

In addition to human problems, there are still questions about money.

The RMB 60 billion is not a small amount, which is equivalent to 130% of Foxconn’s parent company Hon Hai Precision’s total capital expenditure in the past 12 months, which is about 40% of its 155.465 billion cash reserve as of September 30 this year. . In addition, the company's cash flow situation is not optimistic. In the first three quarters of this year, Hon Hai Precision's net cash flow from positive to negative decreased by 641% year-on-year to approximately -24 billion yuan.

Last month, Foxconn just announced plans to cut the cost of nearly 20 billion yuan in 2019. In this 20 billion throttle plan, the iPhone assembly business will be cut by RMB 6 billion, accounting for 30%. In addition, Foxconn plans to lay off 10% of non-technical personnel across the company in response to “very difficult and competitive 2019”.

But the Zhuhai government will solve the problem of money. The Nikkei News reported that most of the 60 billion investment will be borne by the Zhuhai government through subsidies and tax breaks, and will be built as one of China's top high-tech projects. Negotiations have now entered the final sprint phase.

If the project falls to Zhuhai, Foxconn will have a chance to get a reward. In February of this year, the Zhuhai Municipal Bureau of Commerce issued the “Implementation Rules for the Trial Measures for Strengthening Investment Promotion to Promote the Development of the Real Economy in Zhuhai City”. For the physical projects settled in the local area, according to the paid-in capital, the maximum amount of the single project is 50 million yuan. For the paid-in capital, each additional 10 million US dollars or 100 million yuan will be awarded 3 million yuan, and there is no upper limit for the amount of reward. All support award funds will be shared by Zhuhai City and District (Function Zone) 50% each.

Foxconn has also received large government grants in Wisconsin and Zhengzhou, China. The US state of Wisconsin provided Foxconn with a $4 billion subsidy, and Zhengzhou provided $1.5 billion in subsidies to attract Foxconn to build a plant in the city.