Management

Foxconn cuts growth target

By Tim Culpan and Frederik Balfour (China Daily)
Updated: 2010-09-07 08:05

Employees of Hon Hai Precision Industry Co work along a production line in the Longhua Science and Technology Park, also known as Foxconn City, in Shenzhen. Thomas Lee / Bloomberg

Company trims sales projections as demand for computers declines

Taipei - Foxconn Technology Group Chairman Terry Gou cut his long-term growth target for the world's largest contract manufacturer of electronics by 50 percent as demand for Apple Inc iPhones and iPads fails to offset slowing computer sales.

Gou, who founded Foxconn Technology Group in 1974, will tell managers that he's lowering Foxconn's annual sales growth target to 15 percent from the 30 percent fixture set for more than a decade. "How many companies have grown this big and still grow 30 percent?" Gou, 59, said in an interview at his office in Shenzhen on Saturday for Bloomberg Businessweek's next edition. "Fifteen percent is also big."

Foxconn's flagship unit, Hon Hai Precision Industry Co, fell in Taipei trading and JPMorgan Chase & Co cut its rating on the stock, citing concerns over growth. The reduced target, like the spate of suicides that's kept him in Shenzhen since May, may underscore the challenges of managing a $60 billion business that generates more sales than Apple or Dell Inc, and employs almost 1 million workers.

"I don't think investors are ready to hear news of such a big cut in the growth target," said Vincent Chen, who rates shares of Hon Hai "hold" at Yuanta Securities Co in Taipei. "These problems, including lower market growth, are giving Gou the biggest challenge he's ever faced."

Hon Hai dropped 2.7 percent, the most since Sept 1, to close at NT$108.50 ($3.4) in Taipei on Monday. The stock has fallen 20 percent this year, underperforming the Taiex Index, after the deaths of at least 10 workers led Gou to raise wages and accelerate factory relocation plans in mainland. The stock has almost tripled this decade, giving Hon Hai a larger market value than electronics companies such as Sony Corp or Panasonic Corp.

Shipments slowing

Worldwide growth in shipments of computers, Foxconn's main business, will slow to 12 percent in 2011 from 18 percent this year, according to estimates at Taipei-based Capital Securities Corp.

Gou, who has run Foxconn since its founding, said he has a succession plan that may be announced in three years. He plans to keep his job until his one-year-old daughter gets married, the chairman said.

Gou said he expects sales to meet the 30 percent growth target this year as customers recover from the global recession. Revenue at Hon Hai Precision Industry Co, Taipei-based Foxconn's flagship unit, will increase 39 percent to NT$2.72 trillion, according to the average of 18 analyst estimates compiled by Bloomberg.

Those sales would trump those of Gou's customers. Analysts forecast $63 billion for Apple, $62 billion for computer-maker Dell and the $54 billion for mobile-phone producer Nokia Oyj, according to average estimates compiled by Bloomberg.

Gou is considering biotechnology companies as acquisition targets, though he'll slow Foxconn's pace of purchases, he said, declining to identify any company names. Foxconn is also planning to expand in industries such as nanotechnology and media content, he said. Still, Foxconn plans to drive growth mainly through internal expansion after overpaying for some acquisitions, he said.

Bloomberg News