Hon Hai Precision Industry Co., Ltd.

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Hon Hai Precision Industry Co., Ltd.

2 Tzu Yu St.
Tu-Cheng City
Taipei
Taiwan
Telephone: (+886) 2-2268-3466
Fax: (+886) 2-2268-6204
Web site: http://www.foxconn.com

Public Company
Incorporated: 1974 as Hon Hai Plastics Corporation
Employees: 5,200
Sales: NT$245 billion (US$7.37 billion) (2002)
Stock Exchanges: Taiwan
NAIC: 334110 Computer and Peripheral Equipment Manufacturing; 334119 Other Computer Peripheral Equipment Manufacturing

Hon Hai Precision Industry Co., Ltd. is one of the world's leading manufacturers of computer connectors and components, as well as a major "barebones" desktop and notebook PC manufacturer working with many of the world's top tier computer brands and companies, including Apple, Dell, Compaq, Intel, and others. Operating internationally under the Foxconn name, Hon Hai has grown steadily through a combination of a willingness to invest heavily in order to adapt itself to its customers' demands; an early entry into the Chinese market, helping it maintain low production costs; and a diversification of its OEM-based product technologies, while avoiding the pursuit of the branded component market. Responding to the dropoff in the global computer market at the beginning of the 21st century, Hon Hai has extended its production to embrace new industries, notably the mobile telephone market. With the increasing use of computer and electronic technologies in modern automobiles, Hon Hai intends to enter that market as well. The company has also constructed a new plant in order to manufacture LCD screens for the computer, television, and other markets. Listed on the Taiwan stock exchange, Hon Hai has long distinguished itself by its discretion—some call it secrecy. The company remains led by founder, CEO, and Chairman Kuo Tai-ming. In 2002, the company's revenues reached NT$245 billion (US$7.4 billion)—a jump of nearly 70 percent over the previous year.

From Plastics to Connectors in the 1980s

Kuo Tai-ming (also known by the Westernized name Terry Kuo) had initially trained as a sailor, but decided instead to enter manufacturing in the early 1970s. In 1974, Kuo and brother Kuo Tai-chiang founded a small plastics company in Taipei's Tucheng industrial zone. The company, originally called Hon Hai Plastics Corporation, started out making plastic parts for black-and-white televisions. The company quickly added its own mold-making equipment, and in 1975 changed its name, to Hon Hai Industrial Corporation. Sales that year were just NT$16 million (less than US$500,000 at 2003 exchange rates).

Yet Kuo Tai-ming was committed to leading his company into Taiwan's major leagues. Indeed, Kuo would later claim not to have taken more than three days off at a time over the next nearly 30 years, working 15 hours per day, six days per week. As the famously reclusive Kuo told Business Week in a rare interview: You need real discipline. A leader shouldn't sleep more than his people; you should be the first one in, the last one out."

By the late 1970s, Kuo had already begun to develop an interest in a new market—that of the computer and electronics industries. If the basis of these industries remained for the time being in the United States and Europe, manufacturers had already begun to look to the Far East for the production of certain components—a trend that ultimately led to the rise of a number of Asian countries, and especially Taiwan as manufacturing centers for the computer industry.

Kuo quickly recognized the potential for producing computer components and led the company into developing its own range of products. At first, Kuo targeted the connectors market, and by 1981 Hon Hai, which adopted the name Foxconn for its international sales, had converted itself to a specialist subcontractor of connectors for the computer industry. Where other manufacturers focused on producing more high-profile components, Hon Hai concentrated its efforts on developing and producing the parts to connect the components together. In 1982, the company added a new product line—electric wire assembly. This was not the most exciting segment of the computer sector, yet it was perhaps the most universal, meeting the needs of the variety of computer formats and systems in existence at the time. Hon Hai's commitment to such low-profile segments enabled the company to grow strongly through the 1980s.

Kuo backed up his capacity to adapt to new markets with a willingness to invest in infrastructure. In 1983, for example, the company opened a new factory, also in Tucheng. The new facility enabled the company to step up both production and quality levels. Hon Hai now began targeting the world's emerging computer industry giants as customers. By the end of the decade, the company had already achieved a prominent place in the order books of many of the world's largest computer companies. The company's growth enabled it to adopt a policy of working closely with—and exclusively for—top tier companies. Unlike its competitors, however, Hon Hai made no effort to enter the branded market, contenting itself with an OEM role.

International Producer in the 1990s

Like many of the other rising Taiwanese computer manufacturers, Hon Hai at first gained an edge through its ability to churn out products at low prices compared to its Western competitors. Kuo recognized early on, however, that the strong growth in Taiwan's economy and the resulting rise in wages would cut into the company's ability to compete on price. In response, Kuo led Hon Hai to the Chinese mainland, becoming the first Taiwanese manufacturer to launch production on the continent in 1988.

Hon Hai went public in 1991, listing on the Taiwan stock exchange. Despite the public offering, the company, and Kuo, maintained their publicity-shy, almost secretive nature. While market observers complained about the group's lack of financial transparency, and particularly for leaving unclear the source of the group's profits, shareholders had little to complain about—within ten years, the group had become Taiwan's leading private sector computer company, with a market capitalization worth US$8 billion. Kuo's more than 25 percent stake in the company placed him among the world's 500 richest people.

The public offering enabled Hon Hai to begin a new era of expansion, with a focus particularly on the international manufacturing scene. The company moved to expand its fledgling mainland China operation with the construction of two new factories, in Shenzhen and Kunshan. Both factories launched production in 1993.

In 1994, Hon Hai added research and development sites in the United States and Japan. The move brought the company not only closer to these two primary computer markets, it also brought it closer to its main customers. Hon Hai, which traded as Foxconn overseas, showed itself a ready partner for the industry's major players, especially in its willingness to adapt to its customers' requirements—developing new products and entire product lines. For this effort, Hon Hai built up a strong team of more than 3,000 engineers and 100 Ph.D. holders.

Hon Hai's team of developers became one of the most dynamic in the Taiwanese high-tech sector, registering nearly 300 new patents in 1995 alone. By the beginning of the 2000s, the company had received more than 2,000 patents, many of which were developed in response to specific customer requests. Following its customers led the company into a variety of new markets, such as the launch of PC cases and enclosures production in 1996. By investing massively, the company entered its new area with a bang—within a year, Hon Hai counted among the world's largest PC case and enclosure groups, building "barebones" units for IBM, Dell, Apple, and Compaq, among others. Hon Hai had also by then become the world's leading maker of connectors for the computer industry.

As part of its new business, Hon Hai began preparing to move closer to its customers. In 1998, the company opened production facilities in England and Scotland. The following year, Hon Hai added manufacturing capacity in the United States, including an SMT production site in Houston, and in Ireland, where the group built a facility in direct support of the company's contract to supply enclosures for Dell's European PC operation. The group also joined in on the fast-rising notebook computer sector, launching a new subsidiary, Omni Switch Inc., in partnership with Quanta Computer Inc. and Inventec Corp. By the end of that year, the group's sales had topped NT$52 billion (US$1.5 billion).

Hon Hai's longstanding relationship with Apple brought it to the European continent in 2000, when the group constructed a factory in the Czech Republic in order to supply the bare-bones PCs for Apple's newest generation of iMac computers. Meanwhile, the company continued to expand its product range, adding motherboards for Intel—a move that included Hon Hai's takeover of Intel's manufacturing site in Puerto Rico. The company signed on another important client that year as well, when it agreed to produce components for Sony Corporation's Playstation 2 console.

Company Perspectives:

Vision: From computer connectors, Foxconn has moved into communications connectors and connectors for consumer products. Similarly, from PC enclosures Foxconn has expanded into server enclosures and notebook enclosures. Stepping into the 21st century, Foxconn will continue to focus on three major business directions: computers, consumers, and communications. With a strong R&D capability and expertise in mold making and tooling, Foxconn is well equipped to meet any future challenges. Foxconn will continue to leverage on its strengths in global logistics to provide its customers with a fully integrated service. With sound management and clear business objectives, Foxconn is confident it will maintain solid growth in the future.

Diversified Technology Group in the New Century

By the end of 2001, Hon Hai had already claimed the lead as the world's number one motherboard manufacturer. The company's revenues reflected the group's growth, soaring past US$4.5 billion and winning the group the position as Taiwan's leading private sector computer component manufacturer. By then, however, Hon Hai had already begun to take steps to ensure its growth streak would continue into the new century. As computer sales slowed at the beginning of decade, Hon Hai sought new areas for expansion, developing a "3C" strategy of developing computer, communications, and consumer appliance components.

The company launched the communications branch of its new strategy in 2001 by entering the mobile telephone market. By the beginning of 2002, the company had succeeded in winning a contract to supply components to cell phone leader Nokia. In that year, Hon Hai found its first target for the consumer appliance sector, launching a new, US$1 billion facility in Taiwan to produce LCD screens in August 2002. At the same time, Hon Hai announced construction of an industrial complex in China as well, expected to cost the group between US$700 million and US$1 billion.

As group sales rocketed past NT$245 billion (US$7.3 billion) in 2002, Hon Hai showed no signs of slowing down. In that year, the company received new orders from both Gateway and Apple that were expected to boost it to the top of the world's computer component suppliers. Hon Hai's mobile telephone operation also picked up steam, as the company announced its acquisition of Finland's Eimo Oy in September 2003. One month later, Hon Hai followed up that acquisition with an agreement to acquire Motorola's Mexico-based cellular phone manufacturing plant for US$18 million. The company also announced its plans to develop component manufacturing operations for the increasingly computer-laden automobile market. Former sailing student Kuo Tai-ming continued to lead his multinational components empire with a steady hand.

Key Dates:

1974:: Kuo Tai-ming and his brother set up Hon Hai Plastics Corporation in Tucheng, Taiwan, to produce plastic components for black-and-white televisions.
1975:: Company changes name to Hon Hai Industrial Corporation and begins development and production of molded parts.
1981:: Company begins manufacturing connectors for computer industry.
1988:: Company launches first manufacturing operations in mainland China.
1991:: Hon Hai goes public on Taiwan stock exchange.
1994:: Company opens research and development centers in Japan and the United States.
1996:: Hon Hai begins production of PC cases, becoming world leader within one year.
1998:: Hon Hai opens manufacturing facilities in Scotland and the United Kingdom.
1999:: Company opens manufacturing plants in the United States and Ireland.
2000:: Hon Hai opens factory in Czech Republic to produce iMac computers for Apple; takes over Intel's motherboard production facility in Puerto Rico.
2001:: Hon Hai enters production of mobile telephone components.
2002:: Hon Hai begins construction of new $1 billion facility in mainland China.
2003:: Construction of new $1 billion LCD factory in Taiwan is undertaken; Motorola cell phone factory in Mexico is acquired.

Principal Subsidiaries

Foxconn International, Inc.; Fox Semicon Integrated Tech Inc.; Foxteq Engineering; InnoLux Display Corp; Omni Switch Inc.

Principal Competitors

Acer Inc.; ASUSTeK Computer Inc.; Tatung Co.; Gigabyte Technology Company Ltd.; VIA Technologies Inc.; Ritek Corporate Sales; Advanced Application Technology Inc.; SerComm Corp.; Kouwell Electronics Corp.; Flextronics International Ltd.; Solectron Corporation; Sanmina-SCI Corporation.