World’s largest electronic OEM Foxconn applies for China A-share market list, raising to pivot?

Foxconn sets to fundraise, propelling it into the latest technology and automation sector.

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World’s largest electronic OEM Foxconn applies for China A-share market list, raising to pivot?

Foxconn Technology Group, a Taiwanese multinational electronics contract manufacturing company, is listing its internet and industrial-related unit in China’s A-Share market after getting the “go-ahead” from the China Securities Regulatory Commissions (CSRC).

Though being the world’s largest contracts electronics manufacturers and third largest as an information technology company by revenue, people mostly know it as the biggest supplier of Apple’s iPhones. In addition to Apple, other notable clients include Amazon, Cisco, Dell and Lenovo. As a sole assembler of the premium Apple iPhone X, making of apple products still account for 20-30% of its revenue, per the company’s prospectus.

It plans to issue up to 1.97 billion A-shares, or 10% of enlarged capital with the primary purpose to fund eight new projects ranging from building a data center, Internet of Things, 5G Mobile network technology, high-performance cloud computing to intelligence manufacturing. Its updated prospectus says it’ll raise 27.3 billion yuan and that the issue price could be pegged at RMB 13.84 per share.

Foxconn’s fundraising attempt comes in timely even as Beijing steps up in efforts to encourage BAT-type tech giants to list in Shanghai and Shenzhen. It is interesting to note that the 8 new projects set the shift away from a traditional Original Equipment Manufacturer (OEM) model, a diversification into the latest technology and automation sector.

Why the pivot away from OEM?

Global Smartphone Shipments from https://www.counterpointresearch.com/global-smartphone-market-declined-yoy-second-successive-quarter-q1-2018

Foxconn strong dependence on assembling Apple’s iPhone as a revenue driver – is facing shrinking demand and increased competition, with the likes of Xiaomi and Huawei in recent years.

Last December, Foxconn enjoyed a once-off 50% growth in revenue – mainly due to a delayed shipment of iPhone X, a premium model with a marked-up of 20%, as cited by South China Morning Post.

There were wide conflicting speculations with a report from brokerage firm JL Warren Capital who warned that iPhone X shipments would fall by 25 million units, citing reduced orders at some Apple suppliers and another Morgan Stanley report saying iPhone X adoption rate was faster than iPhone 8 or 8 Plus in China.

However, Foxconn’s net profit fell 14.5% year-on-year this quarter – the lowest in the last 4 years, according to Nikkei Asian Review.

Traditional OEM tend to entail higher operating costs which hurts profit – Foxconn’s net profit increased at a mere 1% on yoy basis in the first quarter of 2018. Thinning margins, increased competition and lackluster performance seemed to be the general theme of this business.

Given a fast paced and highly competitive market and a downward trend in global smartphones, Foxconn choice to innovate to stay in the game is necessary. A successful IPO can offer some respite to the pounding pressure and hopefully set the trajectory for a revolutionized business model.

Key facts from Foxconn prospectus and business

  1. Foxconn is the world’s largest electronic contract manufacturer by revenue, it’s also the largest private employer in China and one of the largest employers worldwide
  2. It manufactured around 40% of the world’s consumer electronics as of 2012
  3. A typical work shift lasts 12 hours and an average of 83.2 overtime hours worked per month, according to previous New York Times interviews with its employees
  4. The unit is looking to issue up to 1.97 billion A-shares, representing 10% of enlarged capital
  5. The floatation will raise 27.3 billion yuan and that the issue price could be pegged at RMB 13.84 per share
  6. China International Capital Corporation (CICC) is one of the underwriters for the unit, and will take home a brokerage fee of US$ around 55 million
  7. The unit will be listed under the ticker code of 780138 in China’s A share market, and will be under the name of Industrial Rich Alliance, or 工业富联 in mandarin

Editor: Ben Jiang