Caveat Lector
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mike
buetow
editor-
in-chief

A New Fox in the
EMS Henhouse?

H

on Hai, better known as Foxconn, has been the largest EMS/ODM company in the world since 2005, when it catapulted Flextronics to gain the top spot. To be sure, Foxconn’s revenues then and now are enhanced by ample non-electronics manufacturing segments, but the depth and breadth of the company is by any measure staggering. In calendar 2019, it reached roughly $150 billion, a mark that is all the more impressive when you consider it doesn’t include sales from some of its largest subsidiaries, such as Innolux, Sharp, and its connector and cable units. Its quarterly revenue alone would make it the largest EMS/ODM in the world. And its annual output not only eclipses all its customers’ electronics sales, sans Apple, but also the next four largest competitors combined.

In pursuit of the almighty dollar, Foxconn is the almightiest. Nothing seems out of its reach. Its founder and erstwhile chairman ran for president of Taiwan. It also dabbled in American politics, putting a massive (if mostly empty) facility smack dab in the soy and corn fields of the district of the then-US House Speaker.

Never one to rest on its success, Foxconn is pushing further upstream into the semiconductor market. Having already snared Albit, three years ago it took a shot at the Toshiba memory business. And as we go to press, Foxconn is making a play for Silterra, the Malaysian maker of ICs, MEMs and sensors.

Hon Hai is on high. In mythical terms, toppling Foxconn would be like defeating Voldemort and Sauron. And then for good measure, maybe kicking the butt of that creepy emperor from Star Wars. Any company would be foolish to take that on, right?

And yet … from China (where else?) comes an upstart that apparently doesn’t believe the EMS/ODM pecking order is set per lapis (set in stone).

Luxshare had just been born when Foxconn ascended to the top of the EMS pyramid. It was founded in 2004, and its Xiexun Electronic manufacturing unit came along late the following year.

Like Foxconn, which got its first big break when Terry Gou convinced Michael Dell to start sourcing its plastic parts, Luxshare came about as a provider of cable assemblies and connectors. Its public offering on the Shanghai Exchange in 2010 produced nary a ripple. Yet a decade later, its annual run rate based on the past four completed quarters is nearly $13 billion.

That’s nothing to sneeze at, but why would Foxconn worry about an imitator it could gobble up in a strategic acquisition?

Two reasons. One, Luxshare has impressed the people it needs to impress. In January 2012, when Apple released its first public list of suppliers, a single Luxshare facility was on it. Moving forward to 2007, however, Luxshare snagged a deal to build Apple’s AirPods in Kunshan. Production of the wireless headphones quickly grew to account for nearly 80% of the plant’s total output. As of last year, it had eight plants supplying Apple.

Luxshare’s share of Apple’s manufacturing is reportedly 5%, which equates to about 58% of its total revenue. That’s going to rise, too. As we reported in July, Luxshare has signed a deal worth nearly $475 million to acquire a pair of Wistron entities in China. Those plants make iPhones, giving Luxshare an added boost into the Apple supply chain.

Two, China Inc. can’t be pleased that its biggest private-sector employer has been investing more readily of late in its native Taiwan, India and Vietnam. Moreover, after throwing his hat in the presidential ring, Gou publicly challenged the Communist government in China to recognize Taiwan as a sovereign country. That, coupled with Beijing’s Made in China 2025 strategic plan, could be more than enough to push the weight of the world’s second-largest economy behind Luxshare.

Foxconn reportedly is concerned, enough so that, per Reuters, it convened a task force to study the upstart competitor, a move launched by none other than Gou himself. Among the questions: Is China’s government supporting Luxshare?

Luxshare’s growth has been fueled by acquiring suppliers to Apple. Is Foxconn about to be outfoxed? We are about to find out.

Mike Buetow
P.S. As we come to the end of this most trying year, we thank our readers and customers for your ongoing support, and wish you all a healthy, prosperous 2021.