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Foxconn Prepared to Move Apple Production Out of China if Necessary -- Update

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06/11/2019 | 10:24am EDT

By Yoko Kubota

HONG KONG -- Foxconn Technology Group said it is ready to shift production out of China if necessary for Apple Inc., its biggest customer, as the electronics assembler tries to assuage investors' concerns over the U.S.-China trade conflict.

In its first-ever investor meeting and conference call since going public in 1991, senior executives at Taiwan-based Foxconn sought to address investor uncertainty as it prepares for a leadership transition.

Tuesday's events were aimed at outlining a succession plan for when Terry Gou, Foxconn's founder, stands down as chairman to focus on his campaign for Taiwan's presidency.

Much of the discussion, however, centered on the worsening trade dispute between China and the U.S. and the impact it might have on the core of Foxconn's business -- assembling iPhones and iPads for Apple, mostly in China.

"We are totally capable of dealing with Apple's needs to move production lines if they have any," said Young-Way Liu, who heads Foxconn's semiconductor business group, during the meeting at the company's headquarters outside Taipei.

Mr. Liu said that Foxconn's manufacturing capacity outside of China is sufficient to meet demand in the U.S. market from Apple and other customers, and that production could be expanded at factories globally "according to the needs of our clients."

Foxconn has plants in Brazil, Mexico, Japan, Vietnam, Indonesia, Czech, U.S. and Australia among other countries, according to the investor presentation.

Foxconn, formally known as Hon Hai Precision Industry Co., is the world's biggest contract electronics manufacturer and relies for a large portion of its business on Apple and China. Around 50% of Foxconn's revenue is related to Apple, analysts say. Meanwhile, only about 25% of its manufacturing lies outside China, according to Mr. Liu.

Foxconn and other manufacturers have been laying plans to shift some production out of China as the trade tensions continue to escalate and, according to many analysts, are unlikely to be resolved quickly.

The company has already seen clients, including Apple and Huawei Technologies Co., move production to other locations, said Mr. Liu. Planning for such shift has gathered steam since the U.S. last month increased tariffs on $200 billion worth of Chinese goods to 25% from 10%, and proposed to slap penalties on more than $300 billion more of products, including smartphones, according to industry executives.

The new tariffs "killed a lot of people's hope both China and the U.S. will reach an accord," one of the executives said. "Now everyone realizes this is a long term change."

As many companies plan production shifts, Chinese officials told some foreign technology companies last week that there would be unspecified consequences if they pulled out of China, The Wall Street Journal has reported.

Foxconn recently said that it set up a response team to deal with trade row-related issues and that it is monitoring the situation around the clock.

Aside from trade tensions, Foxconn faces a series of business challenges, as it seeks to lessen dependence on Apple. Foxconn acquired Japanese electronics maker Sharp Corp. three years ago to develop its own consumer brand, while it has also been expanding into semiconductors. Mr. Liu said the company will focus on designing semiconductors.

As Mr. Gou plans to step down as chairman, Foxconn must also transition away from the top-down, detailed and hands-on management style of Mr. Gou, who built the company over four decades. Mr. Gou, who turns 69 this year, is one of five candidates seeking the Nationalist Party, or Kuomintang, nomination for president. The party will select its candidate next month and the general election will take place in January.

At Tuesday's meeting, Foxconn executives said it is setting up a committee of nine executives tasked to decide on major corporate strategies and take over from Mr. Gou. This operations committee will meet weekly and report to the board, Mr. Liu said.

Committee members will consist of four board members and five executives, including Mr. Liu, Fang-Ming Lu, a current board member and the chairman of Asia Pacific Telecom Co., and Sung-ching Lu, the chairman of Foxconn Interconnect Technology Ltd.

Mr. Gou will retain a board seat and remain the largest shareholder, with some 10% of shares. He won't participate in discussions on corporate strategy since he isn't a member of the operation committee, Mr. Liu said.

Employees and analysts have said that many Foxconn executives are well-capable of smoothly running daily operations, though none has the star power of Mr. Gou. He has developed a personal rapport with chief executives such as Apple's Tim Cook and has won accolades from President Trump. The company, after much back and forth, decided earlier this year to go ahead with the construction of a liquid-crystal display factory in Wisconsin.

Yang Jie in Beijing contributed to this article.

Write to Yoko Kubota at yoko.kubota@wsj.com

Stocks mentioned in the article
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