- 2018-10-18
Hon Hai's dilemma
Before the Lunar New Year, at the end of the Taiwanese Hon Hai Group (also known as Foxconn), Hon Hai President Guo Taiming bowed and apologized to all employees and investors as soon as Hon Hai’s revenue declined in 2016. .
Although this is not the first time Guo Taiming bowed and apologized in public, I believe it will not be the last. However, this time it is because Hon Hai has experienced a recession in annual revenue for the first time since the company’s stock went public in 1991. Compared with the past few public apologies of Guo Taiming, this apology is directly related to Hon Hai's operations.
From the perspective of Hon Hai’s annual revenue exceeding NT$4 trillion, it is naturally impossible to require it to maintain an annual revenue growth rate of 10% to 15%. There are even those with a more tolerant attitude who believe that Hon Hai The current scale, coupled with the consideration of the overall business environment in 2016, led to a 2.8% decline in revenue, which can be said to be unexpected but not surprising, and it is still within acceptable limits.
It’s just that these evaluation criteria are based on the market’s belief that Hon Hai’s largest customer, namely Apple, launched the iPhone 7 series in the second half of 2016, which did not win the favor of consumers in the market. It is not only the weak revenue growth of Hon Hai, but also the main reason for the decline in revenue. However, this speculation has changed after Apple announced its latest earnings report a few days ago.
Apple cannot be blamed for the decline in revenue
According to Apple's 2017 financial report for the first quarter, from October to December 2016, Apple not only set a record single-quarter revenue of 78.4 billion U.S. dollars, but the main growth momentum came from the hot sales of the iPhone 7 series. According to the data provided by Apple, Apple’s global iPhone sales reached 78.29 million last quarter, which was higher than the sales performance of the same period in 2015.
Compared with Hon Hai’s biggest competitor in the iPhone manufacturing business, Pegatron, its 2016 revenue not only suffered a decline, but the decline was much greater than Hon Hai’s. It can be seen that the decline in Hon Hai's revenue is not due to the flow of Apple's orders.
Since Apple's revenue performance is not bad, then Hon Hai's revenue decline in 2016 is most likely due to the slow growth or even recession of other businesses, coupled with the impact of Hon Hai's active development of new businesses that are not as expected.
Facing the actual situation, if Terry Gou’s goal is to bring Hon Hai’s revenue to more than twice the current size by 2026, reaching NT$10 trillion (approximately RMB 2.2 trillion), it will be even more severe. The challenge will come from: How to create greater actual output value and higher value of benefit on the basis of existing manufacturing?
It is precisely because of this that Guo Taiming loudly emphasized the importance of the real economy in the three observations made on the economic situation in 2017, and that the manufacturing industry will become the main force of economic growth.
The significance of investing in Sharp
Terry Gou has repeatedly emphasized the advantages of Hon Hai in manufacturing and the importance of manufacturing to the development of the overall industry.
But Hon Hai's manufacturing field mostly focuses on consumer electronics, communications and computer computing related fields. In the face of the future trend of virtual and real integration, soft and hard integration, if it is to continue to play its advantages in manufacturing, in addition to the existing fields, Hon Hai must accumulate more oriented manufacturing energy and use the previous The accumulated production and manufacturing experience in related product fields, combined with the product functions and use characteristics of new industries and innovative applications, can achieve the same high production efficiency in different types of production and manufacturing fields. It will be Guo Taiming's priority to solve the problem.
After all, the previously continuously emphasized technological service, the "one-stop" model of product development, design, and production for brand customers, has begun to undergo subtle changes since the investment in Japan's Sharp in the second half of 2016.
In the past, Hon Hai, even if the "one-stop" technology service model is operated, the products ultimately depend on the customer's judgment of market demand. Suppose Hon Hai believes that wearable devices have formed a certain trend and demand in the market, and wants to launch related products, but as long as the client believes that the product has not yet reached the sweet spot in the market, the launch should be postponed. Hon Hai has no room or power for discussion. However, it is different now. Sharp originally had a wide range of consumer and commercial products including TVs, refrigerators, air purifiers, microwave ovens, etc. It is one thing to introduce Hon Hai’s existing manufacturing model into Sharp’s existing production lines. The recycling of outsourced production lines is another issue related to Hon Hai's manufacturing capabilities.
If Sharp’s outsourcing production can be transferred to Hon Hai, it will not only reduce Sharp’s expenditures, but will also produce certain benefits for filling the production capacity of Hon Hai’s production line during the off-season. However, if the production line that is used to producing smart phones, tablets, servers, and TVs is converted to white goods, can it maintain a certain quality and production efficiency? This will obviously be a big test for the transformation of Hon Hai's production and manufacturing energy. It is very worthwhile. look forward to.
But Hon Hai’s "ten trillion" dream cannot rely on Sharp alone. With Sharp’s experience, can Hon Hai rely on its proud manufacturing capabilities to try more different types of products. For example, smart home appliances, smart homes, smart health care, or other new products related to life applications. Similarly, this will also be another big test of Hon Hai's investment in innovative applications for many years. The test question is Hon Hai’s innovative attempt Whether the product can be accepted by the market.
Therefore, whether Hon Hai should invest in manufacturing in the United States is not really a big problem. It should be said that Hon Hai’s US investment plan is a problem of the US Trump administration, but it is not a problem for Hon Hai and Guo Taiming.
The government's preferential policies for manufacturers are determined by people, and most elected government officials also have terms of office. Rather than wasting troubles and wasting resources for an idea that no one has determined to be feasible, it is better to think about how to strengthen the manufacturing energy and competitive advantage in multiple different fields in the shortest time, and create something that other opponents cannot surpass. Advantage barriers, this approach is more practical for Hon Hai.
In fact, it was reported before the Chinese New Year that Hon Hai would assist the mainland's shared bicycle industry mobike to manufacture and produce bicycles. It can be said to be a small-scale experiment, and it is also the beginning of Hon Hai's production and manufacturing layout in many different fields.
On the premise of maintaining a consistently high production efficiency and cost-effectiveness, can Hon Hai be able to diversify its production and manufacture, and be able to undertake more orders for cross-domain manufacturing? This is the actual challenge Hon Hai faces in the future. It is not the dilemma between China and the United States, nor is it the difficult situation of selling Apple alone, but Hon Hai has been manufacturing for 40 years in the past.