Unraveling Foxconn’s Deal to Build Displays in Wisconsin
February 04, 2019
The Japanese trade press reports that Foxconn will suspend two major display projects in China and the US worth ~$20b US. The China project, which is Sharp’s Gen 10.5 IGZO-based LCD fab in Guangzhou, China, has been suspended for at least six months, and the US project has also been suspended after being scaled back from a Gen 10.5 to a Gen 6. The Sharp Guangzhou fab agreement was signed at the end of 2016, and was Foxconn’s answer to BOE and CSoT’s Gen 10.5 projects, designed for ultra-large (65”+) TV panels. Foxconn halted its plans to build a display fab in Wisconsin but says that the investment project in the US is still a priority for the company, and will need to be reevaluated to reflect changes on the client side. Louis Woo, special assistant to Foxconn chairman Terry Guo, told a news outlet that the company may cut back the scale of the investment in Wisconsin or put it on hold due to its high costs. In response to the report, Foxconn noted that it will keep its promises to invest and create 13,000 jobs in Wisconsin. Foxconn said it will expand its investments locally and new projects will not be limited to only the area it initially decided, making sure that the company and local workers can achieve success in the long run. In addition to electronics products such as TVs, Foxconn said it is also seeking R&D talent in the state to push industrial Internet of Things (IoT) technologies and create solutions for applications including those for education, medical care, entertainment, sport, security and smart city.
Foxconn says that the business environment for building displays changed since 2017 and they can no longer justify building a display fab in the U.S. As we have commented in the past, Foxconn was well aware that there would be too much Gen 10.5 capacity by the time their fab became operational, so they changed to planning a 6thGen LCD fab where the demand is slowing due to the widespread adoption of OLEDs. Foxconn has a history of making promises to build new plants and hire thousands of employees to receive billions in subsidies only to back out before major capex commitments are made.
The prospect of assembling iPhones in the U.S. was struck with another blow when the Mac Pro’s troubled Texas assembly lines experienced limited local availability of custom screws as one issue in the larger problem of a lack of U.S. manufacturing infrastructure compared with that in China. In late 2012, Apple confirmed that it would build a Macintosh computer in the U.S., making the device the first major Apple product in years to be assembled within the country. Bypassing Chinese manufacturers, Apple partnered with Flextronics for the Mac Pro,offloading day-to-day assembly to an Austin, Texas factory as a precursor to a higher volume products but the project ran into staffing and supply problems early on, leading Apple to continue making the rest of its products in other countries.Flextronics struggled from the beginning to meet Apple’s demands and high labor expenses were to blame for the small size of its production teams, which led to delays. Additionally, while Foxconn and rivals could count on armies of workers to keep building products during the 3rdshift, U.S. employees weren’t available for overnight shifts.The lack of local ancillary component makers also turned out to be an issue. Late-stage design changes demanded new parts, including custom screws that suddenly needed to be made and delivered nearby. Flextronics picked a screw supplier that could come close to Apple’s requirements using a small-batch production process, ultimately requiring the supplier’s owner to personally make 22 one-hour trips to deliver 28,000 screws.Improving production in the U.S. would require Apple and the government to make massive investments in job training, supply-chain infrastructure, and robotic assembly — improvements that the report deems unlikely, given the continued supply of cheap Chinese labor under an authoritarian government. Apple has committed to spending billions of dollars on U.S. facilities over the next several years but does not appear to be focusing those funds on domestic manufacturing. In light of the experience, it’s doubtful that Apple will even continue to make the Mac Pro in the U.S. While the old model is still being made in Austin using custom manufacturing hardware, the company mooted it with the late 2017 release of the iMac Pro and has promised a new and thoroughly redesigned Mac Pro for 2019.
On Friday, Foxconn announced that after meeting with President Trump, the 6thGen fab was back on. There was no mention of what concessions Trump made to induce Foxconn too build the fab, but all the same issues described above were not resolved.