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(Bloomberg) -- Terry Gou, the billionaire founder of Foxconn Technology Group, pulled out of next year’s presidential election in Taiwan, a move that may help unite the opposition Kuomintang party.Gou apologized to his supporters in a statement on Facebook Tuesday outlining his decision to withdraw from the race as an independent. After he quit the KMT last week, he had come under pressure from opposition leaders, including former President Ma Ying-jeou, to drop out of the race and support their nominee to help return the China-friendly party to power.“With this poor election climate and prevailing populism, I’m not willing to participate in this political farce, not only for my own personal and factional interests, but also because class struggle is tearing Taiwan apart,” Gou said in a video released Tuesday.Gou could still run as a candidate for one of Taiwan’s established political parties.Shares in companies controlled by Gou slumped Tuesday. FIH Mobile Ltd. was the worst performer on Hong Kong’s Hang Seng Composite Index, tumbling as much as 23.2%. His flagship Hon Hai Precision Industry Co. fell 2% in Taipei.Gou had been widely expected to run for the presidency after publicly flirting with the idea since losing the KMT primary to Kaohsiung Mayor Han Kuo-yu in July. Gou’s candidacy threatened to sap support for Han who will challenge President Tsai Ing-wen in the Jan. 11 election.Gou trailed the two candidates from the main parties by at least seven percentage points, according to a survey released by TVBS last week. In a two-way race, Tsai leads with 49% of support, compared with 42% for Han.What had been shaping up as Taiwan’s most competitive presidential election in decades could end up being essentially a straight fight between Tsai and Han. Another prospective independent candidate, Taipei City Mayor Ko Wen-je, said he had no intention of running for president, according to a report by TV news channel TVBS on Tuesday. Still, Tsai could face increased competition for voters who favor a stronger push for the island’s formal independence. Former Vice President Annette Lu announced her intention to run as an independent. Lu served as vice president under Chen Shui-bian between 2000 and 2008.(An earlier version of this story was corrected to fix spelling of Hon Hai Precision Industry Co. in fifth paragraph)\--With assistance from Tony Jordan.To contact the reporter on this story: Debby Wu in Taipei at firstname.lastname@example.orgTo contact the editors responsible for this story: Daniel Ten Kate at email@example.com, Samson Ellis, Karen LeighFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Terry Gou, the billionaire founder of iPhone assembler Foxconn Technology Group, threatened to throw Taiwan’s presidential race into turmoil as he took a key step toward running as an independent.Gou withdrew Thursday from the opposition Kuomintang, a necessary precursor to mounting a third-party challenge against President Tsai Ing-wen. The move came despite a last-minute plea from senior KMT leaders including Tsai’s predecessor, Ma Ying-jeou, for Gou to back their nominee and help return the China-friendly party to power. Gou has until Tuesday to apply to run in the Jan. 11 election.“I know I’m doing the right thing, something major that will turn around Taiwan’s destiny,” Gou said in a statement. Gou’s candidacy would shake-up Taiwan’s political landscape, undercut KMT challenger Han Kuo-yu’s effort to unseat Tsai and potentially weaken both dominant parties. A three-way race could be a hard-fought affair, with Tsai leading with 33.7% of support, compared with 28.9% for Han and 25.6% for Gou, according to a survey released Tuesday by the Apple Daily newspaper.Since both Gou and Han support closer ties with China -- always Taiwan’s most contentious wedge issue -- the Foxconn founder could complicate the KMT’s bid to oust Tsai and her pro-independence Democratic Progressive Party. Tsai has been dogged by an increasingly assertive Beijing, which has been angered by her refusal to accept the Communist Party’s bottom line that both sides belong to “one China.”“The KMT will be substantially impacted by Gou’s declaration to run,” said Stephen Tan, president of the Taipei-based Cross-Strait Policy Association. “Although Gou will run as an independent, his constituents have been mainly the ‘blue’ voters and the moderates whom KMT is working hard to seek for support.”Taiwan’s Tsai Rises From Ashes With a Hand From Hong KongGou has continued to publicly flirt with the idea of a presidential bid despite losing the KMT primary to Han in July. The firebrand Kaohsiung mayor has become one the island’s best-known -- and most divisive -- political leaders since his surprise win in the DPP’s southern stronghold in November.Han said he regretted Gou’s move to withdraw from the KMT. Ma, the former president, and KMT Chairman Wu Den-yih were among several senior opposition figures who published advertisements in newspapers earlier Thursday urging Gou to support their nominee.Gou built Foxconn from a maker of television knobs into a global powerhouse that is now Apple’s biggest supplier and China’s largest private employer. He also has ties to President Donald Trump, meeting the U.S. leader at the White House in May, weeks before stepping down as chairman of Hon Hai Precision Industry Co., Foxconn’s main listed arm.Shares in companies Gou controls rose after he quit the party Thursday, with FIH Mobile Ltd. surging more than 15% in Hong Kong and the group flagship Hon Hai rising 2% in Taipei.Hong Kong Immigration to Taiwan Surges as Protests Grind OnGou has been sending signals that he might mount an independent run for weeks, although he’ll still need to collect around 280,000 signatures to get on the ballot. After assembling a campaign team, he confirmed last month that he was considering breaking from the KMT for a stand-alone bid.“This conservative, hidebound party leadership is putting their own interests ahead of their party’s and the party’s interests ahead of the nation’s,” Gou’s spokesman, Evelyn Tsai, told reporters Thursday. “Mr. Gou won’t miss this party.”(Updates with Gou quote in third paragraph.)\--With assistance from Adela Lin.To contact the reporter on this story: Samson Ellis in Taipei at firstname.lastname@example.orgTo contact the editors responsible for this story: Brendan Scott at email@example.com, ;John Liu at firstname.lastname@example.org, Karen LeighFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Aides to Foxconn founder Terry Gou visited Taiwan’s top election agency about the paperwork needed to wage an independent campaign for president, in the latest sign the billionaire is inching toward a run.Gou spokeswoman Evelyn Tsai told reporters during a visit Tuesday to the Central Election Commission in Taipei that she was inquiring about petition procedures. While she said Gou has yet to make up his mind, independent candidates must apply for petitions by Sept. 17 for a chance to compete in the January election.“The campaign office is doing preparation, with final decision to be made by Gou,” Tsai said. She was accompanied by a top political consultant to Taipei Mayor Ko Wen-je, who was expected to back any Gou run.Speculation that Gou might mount an independent bid to unseat incumbent President Tsai Ing-wen has swirled since he lost a primary to run the opposition Kuomintang line to Kaohsiung Mayor Han Kuo-yu. A three-way race would inject new uncertainty into what was shaping up to be a showdown between contrasting visions of ties with China.The polls show that a three-way election could be tight. The latest weekly tracking survey released Tuesday by the Apple Daily newspaper showed Tsai leading with 33.7%, compared with 28.9% for Han and 25.6% for Gou.Gou, who in June quit as chairman of Hon Hai Precision Industry Co., Foxconn’s main listed arm, built the company from a maker of television knobs into a global powerhouse that is now Apple’s biggest supplier and China’s largest private employer. Gou also has ties to President Donald Trump, meeting the U.S. leader at the White House in May.\--With assistance from Adela Lin and Debby Wu.To contact the reporters on this story: Miaojung Lin in Taipei at email@example.com;Samson Ellis in Taipei at firstname.lastname@example.orgTo contact the editors responsible for this story: Brendan Scott at email@example.com, Edwin ChanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Apple Inc. and manufacturing partner Foxconn violated a Chinese labor rule by using too many temporary staff in the world’s largest iPhone factory, the companies confirmed following a report that also alleged harsh working conditions.The claims came from China Labor Watch, which issued the report ahead of an Apple event on Tuesday to announce new iPhones. The non-profit advocacy group investigates conditions in Chinese factories, and says it has uncovered other alleged labor rights violations by Apple partners in the past.For its latest report, CLW said undercover investigators worked in Foxconn’s Zhengzhou plant in China, including one who was employed there for four years. One of the main findings: Temporary staff, known as dispatch workers, made up about 50% the workforce in August. Chinese labor law stipulates a maximum of 10%, CLW noted.Apple said that, after conducting an investigation, it found the “percentage of dispatch workers exceeded our standards” and that it is “working closely with Foxconn to resolve this issue.” It added that when it finds issues, it works with suppliers to “take immediate corrective action.” Foxconn Technology Group also confirmed the dispatch worker violation following an operational review.Apple’s supply chain has faced criticism over poor labor standards for years, and the company has pushed manufacturing partners to improve factory conditions or risk losing business. However, suppliers and assemblers are always trying to churn out more handsets. Foxconn, officially known as Hon Hai Precision Industry Co., hires tens of thousands of temporary workers to ramp up production and meet iPhone demand during the key holiday season each year.“Our recent findings on working conditions at Zhengzhou Foxconn highlights several issues which are in violation of Apple’s own code of conduct,” CLW wrote in its report. “Apple has the responsibility and capacity to make fundamental improvements to the working conditions along its supply chain, however, Apple is now transferring costs from the trade war through their suppliers to workers and profiting from the exploitation of Chinese workers.”CLW was founded in 2000 as a 501(c)(3) organization to investigate Chinese factories that make toys, shoes, electronics and other products for some of the world’s largest multinational companies. It has an office in New York City and one in Shenzhen that offers a hotline for factory workers in China, according to its website.While its report said 55% of factory staff were dispatch workers in 2018, and about 50% in August, this included student interns. Because many of these students returned to school at the end of August, that number is now closer to 30%, which is still a violation, according to CLW.“We believe everyone in our supply chain should be treated with dignity and respect,” Apple also said in a statement. “To make sure our high standards are being adhered to, we have robust management systems in place beginning with training on workplace rights, on-site worker interviews, anonymous grievance channels and ongoing audits.”Foxconn said it found “evidence that the use of dispatch workers and the number of hours of overtime work carried out by employees, which we have confirmed was always voluntary, was not consistent with company guidelines.”It added that its “work to address the issues identified in our Zhengzhou facility continues and we will closely monitor the situation. We will not hesitate to take any additional steps that might be required to meet the high standards we set for our operations.”Apple releases an annual supplier responsibility report that details working conditions in its supply chain. In its latest report, Apple said it conducted 44,000 interviews with supplier employees last year to check if they were properly trained and knew how to voice concerns, while taking new steps to prevent forced labor.In late 2017, Apple found Foxconn had employed high school students who worked illegal overtime to assemble the iPhone X. Apple sent specialists to the facility to work with management on systems that ensured appropriate standards were followed.Foxconn is the largest of a coterie of gadget assemblers that produce most of the world’s consumer electronics from sprawling Chinese bases. Typically operating on wafer-thin margins, they employ millions of mostly migrant and temporary workers because activity tends to wax and wane with shopping seasons and fluctuations in demand.Dispatch workers don’t receive benefits that full-time employees get, such as paid sick leave, paid vacations and social insurance, which provides medical, unemployment and pension coverage, according to CLW. While base wages can be higher for dispatch workers, they are paid by third-party firms on a short-term basis and are not employed directly by Foxconn, CLW says. Dispatch workers can become official factory workers after an initial three-month period, according to the group’s report.Last month, Foxconn said it fired two executives at one of its Chinese plants after another CLW investigation found the company was relying heavily on temporary workers and teenage interns to assemble Amazon.com Inc. Echo speakers. Foxconn reviewed the Hengyang facility and found the proportion of contract workers and student interns had on occasion exceeded legal thresholds, and that some interns had been allowed to work overtime or nights.The group, which also monitors conditions in myriad industries from apparel to retail, has run reports in the past on suppliers to the likes of Nike Inc. and Adidas AG and, recently, probed a factory that manufactured Ivanka Trump-branded shoes.Apple and Foxconn seek to produce about 12,000 iPhones per shift at the Zhengzhou factory, CLW’s latest report found. Last year’s iPhone XS models were more complex to build than the iPhone X, requiring more workers, the group also said.According to emails seen by Bloomberg, Apple told CLW in August that it was looking into the findings and had questions about the report. The company sent an investigator to the factory and met with Foxconn officials to discuss the heavy use of dispatch workers, but Apple and Foxconn are still allowing the activity despite violating the 10% standard, CLW said.The CLW report also detailed other findings, such as:During peak production periods, resignations are not approved.Some dispatch workers have not received promised bonuses.Student workers do overtime during peak production season, even though regulations on student internships prohibit this.Some workers put in at least 100 overtime hours each month, during busy production periods. Chinese labor law limits monthly overtime to 36 hours.Workers must get approval to not do overtime. If requests are denied and staff still choose not to work overtime, they are admonished by managers and miss out on future overtime opportunities.Workers sometimes have to stay at the factory for unpaid meetings at night.The factory doesn’t provide adequate protective equipment for staff.Work injuries are not reported by the factory, and verbal abuse is common there.While overtime is allegedly often required, most workers want to work overtime to make more money, according to an anonymous diary written by a CLW investigator in the factory.“We looked into the claims by China Labor Watch and most of the allegations are false,” Apple said. “We have confirmed all workers are being compensated appropriately, including any overtime wages and bonuses, all overtime work was voluntary and there was no evidence of forced labor.”Apple added that less than 1% of workers were student workers, and that a small percentage of them voluntarily worked overtime or night shifts. Apple and Foxconn both said this issue has been corrected.Most factory workers are paid about 4,000 yuan ($562) a month, one CLW investigator found. After taxes and mandatory fees, they get roughly 3,000 yuan a month, according to the CLW report.China’s per capita disposable income was 28,228 yuan in 2018, or 2,352 yuan a month, China Daily reported earlier this year, citing government data.(Updates with detail on the group from the 7th paragraph)\--With assistance from Debby Wu.To contact the reporter on this story: Mark Gurman in San Francisco at firstname.lastname@example.orgTo contact the editors responsible for this story: Tom Giles at email@example.com, Alistair Barr, Edwin ChanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- On a steamy summer morning, dozens of buses pull up outside a cluster of low-slung, blue buildings in the south Indian state of Andhra Pradesh. Women dressed in colorful salwar kameezes disembark, their dupatta body scarves billowing as they make their way past hibiscus bushes and posters proclaiming, “Our aim, no accident.”The night shift at Foxconn Technology Group’s mobile phone plant in Sri City is ending, and thousands of young women are punching out as others stream in to replace them. One of the arrivals is Jennifer Jayadas, a tall, slim 21-year-old who lives several miles away in a two-room hut with no running water.After gobbling down a free breakfast of chapatti flatbreads with a potato-and-pea curry, she dons a checked white hat, apron-shirt, static-resistant footwear and tiny finger gloves. Then Jayadas takes her place at a testing station where she will spend the next eight hours making sure the volume, vibration and other phone features work properly. “Smartphones used to be all made in China,” she says. “Now, we make them here.” Foxconn, also known as Hon Hai Precision Industry Co., opened its first India factory four years ago. It now operates two assembly plants, with plans to expand those and open two more. India has become an important manufacturing base as the Taipei-based company looks to diversify its operations beyond ChinaSucceeding in India has become all the more urgent since U.S. President Donald Trump launched a trade war last year and announced tariffs on thousands of products manufactured in China, including the gadgetry Foxconn makes for Apple Inc., Amazon.com Inc. and others.In late August, Trump ratcheted up the rhetoric—ordering American companies to start pulling out of China and citing a national security law as justification. He backed off two days later, but many companies have resigned themselves to an inevitable and costly rethinking of their global supply chains. “It’s a good business principle not to put all your eggs in a single basket,” says Josh Foulger, who runs Foxconn’s India operations. “We have to find viable and reliable alternatives. Obviously the alternative location has to be competitive. We can’t put a factory in Mexico for manufacturing mobiles. It might have worked 10 years ago, it just won't work today.”Foulger, 48, grew up in Chennai and attended the University of Texas in Arlington, before returning to India in the mid-aughts to set up manufacturing for Nokia. He joined Foxconn four years ago to help founder Terry Gou establish assembly plants in India, now the world’s fastest-growing smartphone market.Foxconn’s first India facility started in 2015 in Sri City, a special economic zone where goods can be imported and exported with limited red tape and foreign companies make everything from diapers to train carriages. Foxconn’s plant employs almost 15,000 workers—about 90% of them women—and assembles phones for various manufacturers, including local best-seller Xiaomi. In recent months, workers began testing and assembling Apple’s iPhone X, which will be sold in India first and eventually exported.A second mobile phone factory opened in 2017 in Sriperumbudur, about two hours by road from the first facility. It employs 12,000 and is partially automated. “By 2023,” Foulger says, “both factories will be much larger and we’ll add two more locations.”Foxconn currently ships parts in from China, but hopes one day to manufacture displays and printed circuit boards locally. Foulger is angling to capture a third of the domestic smartphone market and 10% of the global one (up from a 2.5% share today). Eventually, he plans to add other products, including Amazon Echo speakers, to the mix. “Until now, India has made for India,” he says. “Soon India will make for the world.” Seated in an office overlooking the hubbub of the Sriperumbudur plant, the strapping, bearded executive ticks off India’s pluses: labor costs that are half that of China’s, a vast pool of workers including talented engineers, a government eager to help.They have a staunch partner in Prime Minister Narendra Modi who is under pressure to bring down a jobless rate that currently exceeds 6%. His government’s four-year-old “Make in India” policy seeks to turn the country into a manufacturing power by offering incentives to foreign companies to open factories. “The plan is to expand India’s $25 billion phone manufacturing to $400 billion by 2024,” says Pankaj Mahindroo, who heads the Indian Cellular & Electronics Assn. “A substantial portion of it will be for the export market.”There’s a long way to go: A mere 700,000 electronics manufacturing jobs have been created since Make in India started, according to Mahindroo’s industry group. Skilled workers such as industrial designers are in short supply, and there isn’t yet much of a supplier network providing crucial components such as batteries, semiconductors and processors. “India is not there yet,” says Anshul Gupta, a senior research director at Gartner India. “But things are beginning to fall in place. India can bolster its manufacturing capacity and help the world cut its reliance on China.” Foxconn was integral to China’s transformation into a manufacturing colossus, and Gou has told Modi that Foxconn could help India do the same. But it took China 30 years to get there. “China’s advantage was its massive labor pool that could produce quite cheaply, and they built on that by investing heavily in logistics and transportation,” says Andrew Polk, a founding partner with Trivium China, a Beijing-based research firm. “Even as their labor pool advantage is dissipating, they have invested in processes and systems so they can produce efficiently at scale and get the goods to the market.”Catching up will require the Indian government and private sector to invest heavily in roads, rails, ports and other infrastructure. “When China did it, global supply chains were fragmented and there wasn’t another China,” Polk says. “India will not only have to get it right but they have to get it right in a way to better China, and trade wars can only help at the margins." China also had the benefit of being able to grow without worrying too much about the environmental impact. With concern about climate change growing, “that’s not going to fly these days,” he says.As a two-decade veteran of supply chains in India and elsewhere, Foulger is painfully aware of the challenges. “I can twirl my mustache and say, ‘India can replicate China,’” he says. “The reality is that we have shortcomings.” While the state government provided land, water and power connections for the Sriperumbudur facility, Foxconn, Dell, Flextronics and other companies banded together to build the industrial park for their factories. Even so, Foulger still needs to ferry in water for his thousands of workers because Chennai city and nearby areas have a severe water shortage. Foulger decided early on to recruit mostly women. Female factory workers are commonplace in China, but unusual in India, where rural women are typically consigned to unpaid household or farm work. Women in this region weren’t even allowed to work at night in factories until the local government and the courts intervened four years ago.It was Foulger’s mother who planted the idea and persuaded him to give women the opportunity. A teacher whose students often hailed from underprivileged backgrounds, she told him girls are curious, hard working and committed but family circumstances prevent them from going to college. Many are forced to start work early or are pushed into marriage and child rearing at a young age.Foulger says that because most Indian manufacturers prefer to hire men, it was easy to hit his hiring targets. But he’s had to make accommodations. For instance, the air conditioning had to be turned up to 26 degrees because the woman have never experienced it before. A line manager brought up the issue of sanitary hygiene, and Foulger was initially hesitant. What would be the reaction in their villages, he wondered? Still, he listened and had sanitary pad dispensers installed in the washroom. Foulger also has to pay for extra security for his female recruits and provide buses and dormitory accommodation for those who live far from the factories. But he says it’s well worth the extra cost because “women work hard and appreciate the chances given to them.” Over the years, Foxconn has been criticized for grueling working conditions at its China factories. A string of suicides of young migrant workers earlier this decade shocked the world and prompted the company to create a help hotline, boost pay and install safety netting to discourage jumpers. In August, Foxconn fired two executives at a Chinese plant that assembles devices for Amazon after a labor group alleged it slashed wages and flouted laws to help deal with rising U.S. tariffs.During visits to Foxconn’s two India factories, there was no visible sign of sweat-shop conditions. Workers there mostly complain about the monotony. From the minute they enter the shop floor to the end of an eight-hour shift, work repeats in a relentless cycle. The daily production target has to be met at all costs. Row upon row of women put together each phone part by part, inspecting each handset for visible defects. Shivaparvati Kallivettu, 24, spends her days testing the phone’s audio and examining batteries and SIM card trays, explaining that her main respite comes every morning in the factory canteen when she has breakfast with four close friends.Most women take the jobs with specific goals in mind, such as sending their kids to better schools or clearing family debt. The pay hoists them over the poverty line. Jayadas gets about 9,000 rupees monthly ($130, which is about a third of the average Chinese factory wage), free bus rides and two wholesome meals. To help avoid tedium, the company teaches workers at least 10 skills in the testing, packing and assembly sections of the line so they can be rotated to different jobs. Still, many of the workers treat the job as a stop-gap. Recently, 400 women failed to show up for their daily shift. Managers discovered they were all taking the government’s teacher recruitment exam—a job that pays a third of what they make at Foxconn but provides less tangible compensations.After her shift, Jayadas boards the bus, reaching her home a little before 4 p.m. She helps with the cooking, then fetches 12 buckets of water from a street tap for the family’s daily needs. Her father’s income repairing radios and DVD players is meager and erratic, and her entire paycheck goes to her parents. “First, the house has to be fixed,” Jayadas says gesturing toward the flimsy roof and decrepit walls. “Then, I want to save up for a beautician’s course.” To contact the author of this story: Saritha Rai in Bengaluru at firstname.lastname@example.orgTo contact the editor responsible for this story: Robin Ajello at email@example.com, Peter ElstromFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. HP Inc.-laptop maker Inventec Corp. said it will to shift production of notebooks for the U.S. market out of China within months, adding to the tech industry’s exodus as the world’s two largest economies escalate their trade war.Inventec plans to move its entire American-bound laptop operation to its home base of Taiwan within two to three months, President Maurice Wu said on a post-earnings call Tuesday. Wu’s company assembles Apple Inc.’s AirPods and produces notebook computers for HP, which accounts for an estimated third of its revenue.Underscoring the difficulty of making such long-term production decisions, President Donald Trump said just hours later that the U.S. would push back implementation of tariffs on Chinese-made laptop and other products to December from September. But tech companies aren’t waiting for a trade resolution. From Inventec to Apple-assembler Hon Hai Precision Industry Co., Taiwanese companies that make most of the world’s electronics are reconsidering their reliance on the world’s No. 2 economy as Washington-Beijing tensions simmer.“The trade war is very painful for us,” Wu said, concluding a call during which executives shared how production shifts have hurt the company’s efficiency and margins.Rising tariffs on Chinese-made products threaten to wipe out their margins and up-end a well-oiled, decades-old supply chain. Microsoft Corp., Amazon.com Inc., Sony Corp. and Nintendo Co. are said to be among those now weighing their options away from the line of fire, such as Southeast Asia and India. Alphabet Inc.’s Google has already shifted much of its production of U.S.-bound motherboards to Taiwan, Bloomberg News has reported.Inventec’s shift marks one of the most dramatic relocations since Trump announced his decision to slap 10% tariffs on $300 billion of Chinese imports -- including consumer gadgets from smartphones to notebooks -- originally slated for next month. Spurred on by clients, which include household names like Dell Technologies Inc. and Nintendo, many Taiwanese contract manufacturers are now drawing up contingency plans, shifting select assembly operations or exploring alternative venues.Analysts anticipate the tariff delay will have little impact on those plans.“While this announcement appears to provide incremental (and market-friendly) information as to how the White House is approaching trade policy, we do not believe it represents a substantial shift in the U.S.-China dispute,” Goldman Sachs analysts wrote in response. “Our broader expectation is that the U.S. and China are unlikely to reach a lasting agreement prior to the 2020 election that provides certainty around tariff rates on imports from China.”On Tuesday, Compal Electronics Inc. Chief Executive Officer Martin Wong said his company, a rival to Inventec, has also shifted some notebook lines to Taiwan and was considering investing more in Vietnam should tariff-conflicts persist. Quanta Computer Inc. Chairman Barry Lam told reporters Tuesday his company is definitely re-locating some business to Southeast Asia, though he didn’t mention a timeframe. Chief Financial Officer Elton Yang said Quanta will for now aim to satisfy customers’ demands for production outside of China with their Taiwan facilities.U.S. companies, long accustomed to using China as the world’s workshop, are looking to diversify their manufacturing operations as the uncertainty over volatile trade policy heightens and Beijing shows a willingness to clamp down on foreign firms within its own borders. It’s a shift that may herald a broader, long-term trend as Beijing and Washington continue to spar over everything from market access to trade.The trade war threatens to disrupt a complex global supply chain involving many countries beyond just China and the U.S. Many components that go into devices aren’t made in the U.S., despite being designed there. A phone chip designed by Apple may come out of a factory in Taiwan, then be packaged (a process that prepares it for integration into a circuit) somewhere else, before being shipped to China for assembly into an iPhone.Still, few major manufacturers have moved output in truly significant amounts and China’s status as the world’s production base for electronics is unlikely to diminish anytime soon. Foxconn Technology Group has said it has enough capacity to make all iPhones bound for the U.S. outside of China if necessary, although Apple has so far not asked for such a shift.(A previous version of the story was corrected to amend HP’s contribution to Inventec’s revenue)(Updates with Trump comments in fourth paragraph.)\--With assistance from Jeanny Yu.To contact the reporters on this story: Debby Wu in Taipei at firstname.lastname@example.org;Cindy Wang in Taipei at email@example.comTo contact the editors responsible for this story: Peter Elstrom at firstname.lastname@example.org, Edwin ChanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Hon Hai Precision Industry Co., the biggest assembler of iPhones, reported better-than-projected earnings after snagging additional business from Chinese smartphone giant Huawei Technologies Co.The company reported a 2.5% decline in net income to NT$17.1 billion, compared with the average analyst estimate of NT$16.3 billion. Revenue for the April-June period reached NT$1.16 trillion, according to Bloomberg calculations from previous monthly sales data provided by the company, a record for the second quarter.Hon Hai, the biggest piece of billionaire Terry Gou’s Foxconn Technology Group, has struggled to find new sources of growth after smartphone demand began to tail off in 2018. But in the June quarter, its Hong Kong-listed subsidiary FIH Mobile Ltd. cut costs and likely won orders from rival Flex Ltd., which shunned business from Huawei in response to U.S. sanctions. While investors expect U.S. President Donald Trump’s sanctions to eventually wallop Huawei’s business, the impact of those curbs should be fully felt only in the second half of the year.Flex’s orders from Huawei had gone to FIH, and that would benefit the company’s sales momentum in the second half, analyst Arthur Liao at Fubon Securities wrote in a July 23 note.To contact the reporter on this story: Debby Wu in Taipei at email@example.comTo contact the editors responsible for this story: Edwin Chan at firstname.lastname@example.org, Colum MurphyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
SoftBank Group Corp has secured pledges from Microsoft Corp and other investors of around $108 billion for a second Vision Fund aimed at investing in technology firms. The Japanese conglomerate itself plans to invest $38 billion in the fund, it said in a statement.
(Bloomberg) -- Billionaire Foxconn founder Terry Gou never considered an independent run for Taiwan’s presidency, a spokeswoman for the electronics tycoon said, after Gou lost the nomination to lead the island’s opposition party into January’s election.Speculation that Gou will leave the Kuomintang to pursue leadership of Taiwan is a “fake issue,” his spokeswoman Amanda Liu said in a text message on Tuesday. Gou’s response comes one day after Han Kuo-yu, the firebrand mayor of the southern port city of Kaohsiung, overcame Gou and three other candidates in the party’s presidential primary.Liu declined to elaborate further when asked if Gou still intended to seek Taiwan’s presidency in another capacity, leaving the door open to speculation that the tech tycoon -- who in June quit as chairman of Hon Hai Precision Industry Co., Foxconn’s main listed arm -- would find another way to run in the election. A solo bid by Gou could have a significant impact on the outcome, likely siphoning votes from the KMT as it tries to unseat incumbent President Tsai Ing-wen.Shares of Hon Hai climbed as much as 2.8% to their highest in about two months as investors expect Gou to focus more on the company.Power BrokerThe 68-year-old is a major power broker in the global electronics industry, with unusually strong ties to both the U.S. and China. He built Foxconn Technology Group from a maker of television knobs into a global powerhouse that is now Apple’s largest supplier and China’s largest private employer, with as many as 1 million mostly migrant workers assembling everything from iPhones to Dell desktop computers.Earlier: China-Friendly Mayor Tops Foxconn’s Gou to Vie for Taiwan LeaderGou also has ties to U.S. President Donald Trump, agreeing to build a 13,000-worker facility in the state of Wisconsin in exchange for more than $4.5 billion in government incentives.Hailed by Trump as “one of the great deals ever,” the project has since been criticized for low-paying jobs and sudden dismissals. Foxconn says the plant is on track to begin producing LCDs next year.\--With assistance from Miaojung Lin and Adela Lin.To contact the reporters on this story: Debby Wu in Taipei at email@example.com;Iain Marlow in Hong Kong at firstname.lastname@example.orgTo contact the editors responsible for this story: Brendan Scott at email@example.com, Edwin Chan, Karen LeighFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
World stocks fell for a third straight day on Tuesday after a stinging warning from German chemicals giant BASF about the effects of the global trade war and as hopes dwindled of a hefty U.S. interest rate cut this month.
(Bloomberg Opinion) -- Ten months ago, I warned that storm clouds were brewing over the global technology industry. The situation today is much worse.Back then, a U.S.-China trade war was more risk than reality, Apple Inc.’s pending iPhone update held promise, and central banks were still in tightening mode. Yet inventories at the end of June 2018 had climbed to the highest since the financial crisis a decade earlier and a sector-wide slowdown was looming.At the time, the Pollyannas were louder than the Chicken Littles. The next iPhone had yet to launch and Christmas shopping season was coming, argued the optimists.Since then, global technology companies have issued loud warnings about lost sales due to U.S. actions against Huawei Technologies Inc. In short, because the U.S. is restricting what can be sold to the Chinese giant, the company and its suppliers are cutting orders. This is causing a ripple effect from semiconductor materials supplier IQE Plc to chip designer Broadcom Inc.But there’s something you need to know about the Huawei effect: It isn’t the cause of this technology recession. If anything, the company is the reason why the situation didn’t worsen earlier. The U.S. war on Huawei propped up the tech sector, notably semiconductors, over the past year.Let me explain. Immediately after the Trump administration in May blacklisted Huawei from buying U.S. components, Bloomberg News reported that the maker of telecommunications equipment and smartphones had been been stockpiling components in anticipation of some kind of action. Chairman Ren Zhengfei saw his own storm brewing and started saving for the rainy day that came on May 17.This tells us that some proportion of global component demand over the past year wasn’t led by end-product sales, but merely by shelf-stocking. More significantly, what revenue component makers did see was probably a false signal, pointing to demand that didn’t exist.These suspicions were confirmed earlier this month when Mark Liu, chairman of made-to-order chipmaker Taiwan Semiconductor Manufacturing Co., told me that he wasn’t sure how much of his company's recent revenue had gone to supplying Huawei’s end-product demand versus building the Chinese company’s inventory. Almost every technology company is a client of TSMC. If Liu, who has the broadest and deepest picture of the global tech sector, can’t make out the difference between demand and inventory build, then you can be sure he’s not alone.There’s also solid data to show the scale of Huawei’s stockpiling. Total inventories climbed 33% last year. Its stash of components – measured as raw materials and works in progress – jumped 76%. At even its most optimistic, there’s no way that Huawei expected 76% revenue growth this year.Which brings us back to the sector as a whole.Here’s an update of the numbers compiled 10 months ago, based on nine leading technology hardware companies and charted by my colleague Elaine He. The results aren’t heartening:With few exceptions, inventories – measured in dollar terms or days outstanding – climbed since June 30, 2018, and were unequivocally higher than two years ago. The revenue slowdowns that have affected every corner of the hardware sector this year make this buildup ominous.Of even greater concern are data pointing to prolonged cash conversion cycles, a measure of how long companies take to turn manufactured goods into money. The only firm to see a solid dip is Apple, and that’s because it tends to generate revenue from customers before having to pay suppliers. Both TSMC and iPhone assembler Hon Hai Precision Industry Co. (aka Foxconn) have said they hold inventory on their books for their key client. Were it not for that fact, Apple’s rising inventory days outstanding would probably be even higher.A major reason for Hon Hai posting weak earnings in the first quarter was inventory provisions. Those can be reversed if products sitting on shelves get sold to consumers, Hon Hai CFO David Huang told me this month. But shipping an already-made device to meet demand means you don’t need to manufacture a new phone, which in turn means no need to buy components from suppliers, and so forth.That’s the situation we’re in now: plenty of inventory, false signals from the Huawei effect, and a pending global economic slowdown that’s likely to suppress demand. If that doesn’t make make you worry about the state of global technology hardware, then I applaud your optimism. To contact the author of this story: Tim Culpan at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- The billionaire founder of Apple Inc.’s largest supplier asked the U.S. company to move from China to neighboring Taiwan."Speaking from the perspective of the Republic of China, I will plead to Apple to come to Taiwan," said Terry Gou, who remains the largest shareholder in Hon Hai Precision Industry Co., answering a question about whether Apple will shift production away from China. He was referring to Taiwan by its formal moniker. “I believe it is possible," he said without elaborating.Louis Woo, a special assistant to Gou, later said that the executive and Taiwan presidential hopeful was urging Apple to "invest" in Taiwan, not to move plants from China.The Trump administration’s threat to levy tariffs on some $300 billion of Chinese-made goods -- including phones and laptops -- has inflamed speculation that Apple will divert some capacity away from the world’s second largest economy. And Hon Hai is the largest of hundreds of Apple-suppliers with factories on the mainland, making most of the world’s iPhones from the central Chinese city of Zhengzhou.A significant shift of manufacturing from China to Taiwan -- which Beijing views as part of its territory -- may also exacerbate tensions between the two governments. Hon Hai, the main listed arm of the Foxconn Technology Group, is today the largest private employer in China, paying as many as a million mostly migrant laborers to put together everything from iPhones to HP laptops.Gou, who is stepping down as Hon Hai chairman Friday to focus on winning a party nomination to compete in the 2020 Taiwanese presidential elections, had run a company that depends on Apple for half its revenue. It’s unclear how much capacity Gou may have been referring to, nor how feasible a large-scale move -- for Hon Hai or any other Apple supplier -- may be.The Taiwanese firms that assemble most of the world’s electronics are now expanding or exploring plants in Southeast Asia and elsewhere to escape punitive tariffs on U.S.-bound goods. But the vast majority of their capabilities remain rooted in China. The Nikkei reported this week that Apple asked its largest suppliers to consider the costs of shifting 15% to 30% of its output from China to Southeast Asia, but three major partners to the U.S. company later pushed back against that idea. Hon Hai itself has said Apple hasn’t requested such a move.(Updates with comment from Gou special assistant in third paragraph.)To contact the reporter on this story: Debby Wu in Taipei at firstname.lastname@example.orgTo contact the editors responsible for this story: Peter Elstrom at email@example.com, Edwin ChanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Hon Hai Precision Industry Co., the largest assembler of Apple Inc.’s iPhones, has named Young Liu its new chairman to replace billionaire founder Terry Gou.Hon Hai said the semiconductor division chief’s appointment takes effect July 1, taking up a post vacated by Gou. The Taiwanese billionaire, who built the company from a maker of TV knobs into a global consumer electronics powerhouse, is stepping down to focus on winning a party nomination to compete in the 2020 Taiwanese presidential elections. Hon Hai’s shares slid more than 1%.Liu takes the helm at a precarious time for the world’s largest contract manufacturer, known also as Foxconn. Escalating U.S.-Chinese tensions are hurting consumer sentiment and raising fears about the impact on Foxconn’s plants, most of which are located in the world’s No. 2 economy. Washington is threatening to hit Beijing with new tariffs on about $300 billion worth of Chinese goods including phones and laptops -- directly affecting Hon Hai’s business with Apple and the world’s biggest electronics brands. And Beijing has shown a growing willingness to retaliate against American names.Gou had long been expected to step back from Foxconn’s day-to-day operations to focus on his political endeavors. He remains a board member and largest shareholder, but formally handed the baton over on Friday during the company’s annual general meeting in Taipei.“I have very complicated feelings,” Liu told reporters after the meeting wrapped. “I will work to maximize the shareholders’ interest.”Read a live blog of Hon Hai’s Friday AGM here(Updates with effective date from the second paragraph.)To contact the reporter on this story: Debby Wu in Taipei at firstname.lastname@example.orgTo contact the editors responsible for this story: Peter Elstrom at email@example.com, Edwin Chan, Colum MurphyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- On June 11, for the first time in history, Foxconn Technology Group held an investor relations conference for its flagship company.That’s the good news. The bad news is what the moment portends: The world’s largest electronics manufacturer is about to be left without a CEO.It took founder Terry Gou’s pending departure from Hon Hai Precision Industry Co. to face its stakeholders beyond the legally mandated annual shareholders’ meeting. Gou didn’t even bother to turn up, choosing instead to continue his campaign to become Taiwan’s president.After’s Gou’s departure, which could be as soon as Friday, Foxconn will have a new chairman, and the CEO role will be replaced by a committee of nine. For the past 45 years Gou has been the sole decider and face of the company. So while this major shift in leadership brings sudden and long-overdue transparency, it also leaves his sprawling company – which spans more than a dozen nations, up to one million workers, and an all-star client list – in the hands of a committee and without a chief.I’ve long been skeptical about the company and its future, with or without Gou. As the global tech industry faces both a macroeconomic slowdown and the fallout from U.S.-China trade tensions, Foxconn finds itself caught in the crossfire.The comportment of the company’s new management now allays some of those concerns. At the investor event and a telephone conference that followed, these executives – many of whom had rarely spoken publicly – succinctly fielded questions about the challenges of running Foxconn in the age of President Donald Trump, the possibility of moving iPhone production out of China, and the company’s need to transform. That’s a refreshing change from the waffling, disjointed answers Gou usually gives to the media.Still, this doesn’t mean everything is sorted. The debate over Foxconn’s next chairman, which has been raging for more than a decade, continues. Group CFO Huang Chiu-lian, known as Money Mama, was among the names tipped to take control. Heads of various divisions are also being considered.It’s my belief that Young Liu, currently head of Foxconn’s chip division, will get that job. (Huang isn’t in the running since she won’t be on the new board). Getting the chairmanship, though, doesn’t mean taking Foxconn’s Iron Throne. Rather, this management-by-committee strategy sets the company up for possible infighting among various division chiefs, some of whom are part of that inner circle.Any executive decision inevitably becomes a question of resource allocation. Since Foxconn is notoriously tight-fisted, divisions will likely need to compete with each other or engage in back-room horse trading to get what they want.If the collegiality on display at the new team’s first public outing dissolves, then the executive lineup is likely to become a war of attrition. When Gou floated the idea of retirement a dozen years ago, he talked about winnowing his list down from more than 35 to less than 10 possible successors. But he’s never groomed anyone, unlike compatriot Morris Chang, who spent considerable time training up his successors for the company he founded and chaired, Taiwan Semiconductor Manufacturing Co. More than a few people who follow Foxconn have told me they think that most lieutenants will retire pretty quickly if they don’t get clear control over the company once Gou steps down. As some depart, competition to take the reins may ensue. My fear is that a series of departures and jostling will weaken Foxconn just when it needs stability and a single leader. Once that shakes out, any eventual winner may find that there’s no throne to take, let alone dragons to fight with.To contact the author of this story: Tim Culpan at firstname.lastname@example.orgTo contact the editor responsible for this story: Rachel Rosenthal at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a coming daily newsletter that untangles a world embroiled in trade wars. Sign up here. Apple Inc. has asked its largest suppliers to consider the costs of shifting 15% to 30% of its output from China to Southeast Asia in a dramatic shake-up of its production chain, the Nikkei reported.The U.S. tech giant asked “major suppliers” to evaluate the feasibility of such a migration, the newspaper cited multiple sources as saying. Those included iPhone assemblers Foxconn Technology Group, Pegatron Corp. and Wistron Corp., MacBook maker Quanta Computer Inc., iPad maker Compal Electronics Inc. and AirPod makers Inventec Corp., Luxshare-ICT and GoerTek Inc., Nikkei cited them as saying.China is a crucial cog in Apple’s business, the origin of most of its iPhones and iPads as well as its largest international market. But President Donald Trump has threatened Beijing with new tariffs on about $300 billion worth of Chinese goods, an act that would escalate tensions while levying a punitive tax on Apple’s most profitable product. Company spokeswoman Wei Gu didn’t respond to a request for comment.Two major Apple suppliers pushed back against the Nikkei report. The U.S. company has not asked for cost estimates for shifting production out of the world’s No. 2 economy, although suppliers are running the numbers on their own given the trade dispute, said one person familiar with the matter, asking not to be identified discussing internal deliberations. Another supplier said it too had not gotten such a request from Apple and that the Cupertino, California-based company had resisted a proposed production shift to Southeast Asia.Apple does have a backup plan if the U.S.-China trade war gets out of hand: Primary manufacturing partner Hon Hai Precision Industry Co. has said it has enough capacity to make all U.S.-bound iPhones outside of China if necessary, Bloomberg News reported last week.The Taiwanese contract manufacturer now makes most of the smartphones in the Chinese mainland and is the country’s largest private employer. Hon Hai, known also as Foxconn, has said Apple has not given instructions to move production but it is capable of moving lines elsewhere according to customers’ needs.Apple hasn’t set a deadline for the suppliers to finalize their business proposals, but is working together with them to consider alternative locations, the Nikkei said. Any move would be a long-term process, it cited its sources as saying.Beyond Apple’s partners, the army of Taiwanese companies that make most of the world’s electronics are reconsidering a reliance on the world’s second-largest economy as Washington-Beijing tensions simmer and massive tariffs threaten to wipe out their margins. That in turn is threatening a well-oiled, decades-old supply chain.Taiwan’s largest corporations form a crucial link in the global tech industry, assembling devices from sprawling Chinese production bases that the likes of HP Inc. and Dell then slap their labels on. That may start to change if tariffs escalate, an outcome now in the balance as Washington and Beijing spar over a trade deal.Apple is an outsized figure in that negotiation. The high-end iPhone, which accounted for more than 60% of the company’s 2018 revenue, drives millions of jobs across China as well as a plethora of different industries from retail to electronics. The country is also a major consumer market in its own right, yielding nearly 20% of last year’s revenue -- weakness there pushed Apple to cut its sales forecast in January.“Twenty-five percent of our production capacity is outside of China and we can help Apple respond to its needs in the U.S. market,” Hon Hai board nominee and semiconductor division chief Young Liu told an investor briefing in Taipei last week. “We have enough capacity to meet Apple’s demand.”(Updates with a source’s comments from the second parapraph.)To contact the reporter on this story: Debby Wu in Taipei at firstname.lastname@example.orgTo contact the editors responsible for this story: Peter Elstrom at email@example.com, Edwin ChanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.