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Foxconn to enter chip market, partner with ARM on design center in Shenzhen www.asia.nikkei.com
TAIPEI -- Key iPhone assembler Hon Hai Precision Industry, also known as Foxconn Technology Group, is trying to expand its foothold in the semiconductor industry by partnering with SoftBank Group-owned ARM to create a chip design center in the southern Chinese city of Shenzhen, people familiar with the matter told the Nikkei Asian Review.
The move highlights the ongoing efforts by the world's largest contract electronics maker to build more key components and tap into new technologies for future growth faced with weakening global demand for smartphones. While Foxconn Chairman Terry Gou has set an annual sales growth target for his manufacturing empire of 10%, Hon Hai's revenue for the first nine months of 2016 dropped more than 3% year-over-year.
One nascent field Gou has enthused about is the internet of things, the technology that requires a growing number of chips to help items in daily use to connect to the internet and communicate with each other.
According to research company IC Insights, the IoT chip market will grow 19% to $18.4 billion in 2016, and will expand to $29.6 billion in 2019. Research group IDC estimates that the total IoT market will top $5 trillion in 2019.
"We want to get into semiconductor design and production," Gou told China's Shenzhen Satellite TV last week, at around the time when Foxconn signed a memorandum of understanding with the Shenzhen government to work together on semiconductor technology and startup incubators. He did not elaborate further.
Sources familiar with the plan said that Foxconn is working with ARM, the British innovator whose chip technology is adopted by 95% of smartphones worldwide, to create a chip design center in Shenzhen, without providing details.
ARM, Foxconn and SoftBank all declined to comment.
Better service
Foxconn's attempt to build its own chips and its earlier acquisition of embattled Japanese electronics conglomerate Sharp in the hope of developing advanced organic light-emitting diode panel technology appear to be part of its strategy to better serve customers by supplying key components as well as providing assembly services.
Further, both chips and OLED panels offer better revenue and margins than Foxconn's core assembly business. OLED panels are expected to be adopted by Apple's premium iPhone handset next year.
Other than Apple, Foxconn also assembles handsets for major Chinese brands including Oppo, Huawei and Xiaomi, with Japan's Sharp also planning to increase its smartphone offerings.
An industry executive said that Foxconn has been trying to develop an application-specific integrated circuit (ASIC), a customized chip, even though the company's presence in the semiconductor field has been very limited so far.
ASIC is designed for specific functions, such as a thermal sensor. It is not as powerful as a core processor or a graphic processor, but demand for ASIC is expected to surge with the rise of the IoT.
"It's very likely that Foxconn wants to expand its business beyond assembly and grow by making more key components for its customers," an industry executive said. "There is always the possibility that Foxconn's major customers including Apple may want to outsource some simple chips, and Foxconn will definitely want to secure those new businesses if it has the capability."
Another industry source said that both Foxconn and Sharp have licensed chip technology from ARM previously.
Shenzhen connections
The person further said that Foxconn has recently made a strong investment commitment to the Shenzhen authorities with the signing of the memorandum of understanding.
Shenzhen is already home to Foxconn's China headquarters and now it seems that the coastal city may play an even more vital role in the Taiwanese manufacturing titan's future, with Apple also expanding operations in the area.
Earlier this month when Chief Executive Tim Cook visited Shenzhen, Apple, which accounts for more than 50% of Foxconn's annual revenue, announced that it will set up a research and development center in the coastal city, coinciding with Foxconn's move to deepen ties with local authorities.
During Cook's trip, Gou accompanied him to meet Chairman Xu Shaoshi of China's National Development and Reform Commission and other senior Shenzhen officials.
Meanwhile, the new Foxconn-ARM chip design center is being created following close collaboration between Gou and SoftBank Chairman and Chief Executive Masayoshi Son.
Both share the belief that the IoT will be a major growth driver in the future and it should become a core business of their respective companies. This conviction led Son to acquire ARM for 23 billion pounds ($31 billion) earlier this year.
Gou and Son have also been working together closely on other business opportunities. Foxconn has been making SoftBank's humanoid robot Pepper, and the two companies have been investing in renewable energy and startups together in India. They also have formed a joint venture with China's e-commerce giant Alibaba to market Pepper worldwide.
Published Date:2016-10-20
