Foxconn Possibly Reversing Course in Display Production
August 12, 2019
Terry Gou, the founder and former CEO of Foxconn saw an opportunity to become a player in the display market 2016 and bought a 66.7% controlling interest in Sharp for $3.5b. He already owned 50% of the output of the Sakai Gen 10 facility and a controlling interest in Innolux. Foxconn, the leading assembler of smartphones and white box TVs was the biggest buyer of displays, so why not move down the supply chain and increase revenues and margins, with little sales expense? At the time, Innolux was enjoying a paucity of large area panels as Samsung and LG were closing or converting Gen 7 LCD fabs and BOE had not started production at their Gen 10.5 fabs, triggering a demand shortage, higher panel prices and high margins. Gou subsequently took other actions, by committing to an LCD Gen 10.5 fab in Guangzhou, China and an LCD Gen 10.5 fab in Wisconsin, U.S. But Gou might not have considered the effects of the “Crystal Cycle”, where in a 3 year period, performance goes from high margins to negative margins based on how well timed the introduction of new capacity coincides with new demand.
What occurred seems to be a disaster for Foxconn:
This week Reuter’s reported that Foxconn is exploring the sale of its Gen 10.5, $8.8 billion display panel factory in China with 90,000 substrate/month capacity, just as it is about to start MP. Foxconn is in talks to appoint banks to find a buyer for its liquid crystal display (LCD) factory that is being built in Guangzhou China. The discussions are at an initial stage and it has not yet come up with a price tag for the Gen-10.5 fab. The project was run by a joint venture between the Guangzhou government and Japan’s Sakai Display Products. Foxconn is already under the spotlight for having failed so far to meet job-creation targets in Wisconsin. The company told Reuters earlier this year it was reconsidering plans to make advanced LCD panels at Wisconsin.
And Gou, who retired from active management of Foxconn to pursue the role of President of Taiwan, lost to the mayor of Taiwan’s 2ndlargest city in the primaries.