Foxconn, the world’s largest electronics manufacturer, recently announced a joint venture with Yongeo Corp., a Taiwanese component maker specialized in passive components such as resistors and capacitors. The new joint venture, named XSemi, will focus on creating so-called “small ICs” – mainly power semiconductors and analog chips with average sale prices below US $2.
The move once again draws attention to Foxconn’s semiconductor ambitions, after Foxconn failed to acquire a Malaysian 8-inch fab last year, before attempting to buy a 6-inch fab from Macronix, a Taiwanese manufacturer of Non-Volatile Memory.
As the world’s largest electronics contract manufacturer, Foxconn has lately committed to transform itself, pursuing its so-called “3+3” strategy. It seeks to enter three industrial sectors: smart healthcare, electric vehicles and robotics. And three new technologies will be their focus: AI, semiconductors and next-generation telecommunications.
According to Young Liu, Foxconn’s new chairman and CEO, semiconductors will play a crucial role in the company’s ventures into the three above-mentioned industrial sectors, and it drives Foxconn to acquire foundries.
Terry Gou’s secret ambition
Foxconn’s semiconductor strategy took a milestone step in 2016, when it made two decisive moves. First, it partnered with ARM to create a chip design center in Shenzhen, China. Second, it acquired the Japanese electronics maker Sharp, spending US $3.5 billion. Back then, the acquisition was mainly interpreted in terms of Foxconn’s interest in Sharp’s OLED screen panels, especially as a main manufacturer for Apple’s iPhones.
Largely overlooked was the fact that Sharp also owned a 8-inch fab in Fukuyama at the 0.13μm node. Back then, Foxconn’s founder and CEO, Terry Gou, already revealed that the acquisition partially aimed to combine Foxconn and Sharp’s experiences in semiconductors.
In 2017, Foxconn established the “S” subgroup, dedicated to the IC industry. The fact that Young Liu once headed this subgroup before he took the helm of the entire conglomerate explains how semiconductor was prioritized in Gou’s mind.
Later Foxconn made a series of acquisitions to gain a foothold in the upstream and downstream of IC value chain. For example, it set up a IC packaging and testing plant in Qingdao, China and it is estimated to begin production in 2021. In 2019, however, Foxconn still denied that it would enter the chip manufacturing industry.
A rocky road ahead
Despite Foxconn has now made plain that it intends to explore the entire semiconductor value chain, the contour of it strategy remains unclear. If it pursued vertical integration, it could potentially benefit its position as a contract manufacturer. The company has been troubled by its chronically low profit margin. Being able to design ICs and manufacturing them for customers could change the game: Foxconn could win higher valued-added contracts while eliminating its expenditures on purchasing semiconductors.
On the other hand, this entry strategy would also inevitably pit Foxconn against current IC designers and manufacturers.
Geopolitics could also play a role too. If the decoupling process between the US and China intensify, Foxconn would have to alter its strategy of “made in China, sold to the world”. Even though China’s aggressive semiconductor industrial policies could benefit Foxconn’s chip venture with subsidies and other incentives, Foxconn would be forced to set up chip productions outside of China to serve its global consumers.