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From Apple to SpaceX, Foxconn has a talent for spotting early what hot companies are up to.
The Taiwanese group, best known for assembling iPhones, has developed two experimental satellites with Taiwan’s National Central University, which were launched on a SpaceX rocket last month. The venture comes at the right time. Widening the scope of its contract manufacturing business beyond its core consumer electronics activities will help margins.
Foxconn has been one of Apple’s largest contract manufacturers, since it started assembling iMacs in 2000. iPhones have been a key revenue contributor: Foxconn manufactures 70 per cent of iPhones globally. But as global smartphone sales slow and rivals from Taiwan and China start chipping away at its market share, finding its next big thing is proving challenging.
The urgency is growing. It runs on razor thin margins. Following a decline in operating margins to 2.4 per cent in 2011, it has struggled to recover the healthier levels of the early 2000s.
Foxconn has made a big bet on becoming the go-to contract electric-vehicle maker for global auto companies. But this has coincided with surging competition from China. It will need a full pipeline of contracts to appease investors worried about the cost of building up its EV manufacturing capacity.
Foxconn can, though, use its investments in EV manufacturing to enter other compatible industries. Satellite connectivity and positioning data, for example, is crucial for autonomous driving in remote areas where connections are unreliable. Motors, power and network technologies may be repurposed for communications satellite uses. Securing government clients for its burgeoning satellite business would help provide a stable revenue stream.
Shares are down 15 per cent from a September high and trade at 11 times forward earnings. That is about a third that of Chinese rival Luxshare. Adding new industries to its client list will help Foxconn hedge against revenue volatility.
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