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Hon Hai to Raise Outbound Investment Amid Derailed Sharp Partnership

Dec 17, 2013 | By Steve Chuang

With plans to cooperate with Sharp to develop the Chinese market for smartphones and LCD panels failing, the Taiwan-based Hon Hai Precision Industry Co., Ltd., now the world's largest electronics manufacturing service provider by size, is looking to enhance outbound investments to secure growth for the coming years.

After over one and a half years of negotiations, the Hon Hai-Sharp partnership has not borne fruit, as Sharp is reportedly losing interest in developing and marketing own-brand smartphones in the Chinese market and set up an LCD panel fabrication plan in Chengdu, western China, both originally planned for 2014, in cooperation with Hon Hai, after soliciting considerable investments from Qualcomm, Samsung and other foreign investors to relieve its financial hardship.

Hon Hai recently confirmed the termination of partnership and noted that the two firms at this time have no plans to collectively launch new smartphones in 2014, without commenting whether they will jointly invest in constructing an LCD plant in Chengdu.

Hon Hai chairman, Terry Gou, in 2012 invested personally in Sharp's 10th generation plant in Japan to facilitate the partnership, has completely switched his focus onto other investments, including the earlier one in 4G communication.

Japanese news agencies reported that Sharp has already abandoned plans to dispatch technicians to Chengdu to help Hon Hai construct an LCD production plant in exchange for income of some tens of billions of the Japanese yen. Another sign of derailing partnership is Sharp's earlier announcement to suspend launch of its new smartphone models supplied by Hon Hai in China at the end of 2013, responding to Chinese boycott of Japan-made goods amid tension between the two countries over disputed islands in East China Sea.

New Headquarters in the U.S.
To support Apple Inc., its major customer, to bring manufacturing jobs back to the U.S., Hon Hai has been seeking locations to set up new headquarters on the east and west coast, which involves considerable investment and will create numerous jobs, hence attracting interest from a couple of state governors.

Arizona Governor Janice Brewer met Gou in Taiwan in early November 2013 to persuade Hon Hai to locate its new headquarters in the state. Also, Robert Menendez, a senator from New Jersey, personally introduced Gou to local investment conditions during the chairman's visit to the U.S. in mid-November, inviting Hon Hai to invest in the state.

With an R&D center in Boston and several ongoing cooperation projects with Massachusetts Institute of Technology and Harvard University, Gou said that Hon Hai will choose an ideal location for the eastern coast headquarters among Pennsylvania, Virginia, New Jersey and others, with the one on the west coast to be situated in San Jose, California, near Apple's headquarters.

Gou pointed out that the planned investments that are designed to shift Hon Hai's higher-end production lines to the U.S. will benefit mutually his company and local high-tech industries, especially when local young people generally like to work in software to cause manpower shortages among hardware manufacturing. He commented that with the U.S. actively developing local manufacturing, it is opportune for his company to set up higher-end production lines in the country, especially when rising cloud computing enables manufacturers to manage and control factories globally. In the long run, the chairman added, Taiwan's economy will also benefit considerably from the transition.

Handset Factory in Indonesia
Meanwhile, Hohamad S. Hidayat, Indonesian Minister of Industry, recently reported that Hon Hai is considering setting up a handset production base in the country, after Gou confirmed during the APEC in early October that his company will soon begin constructing such a plant as part of its five-year development plan in the market. Hidayat said that Hon Hai will choose either Jakarta or the Yogyakarta Special Region to build the handset plant.

Noteworthy is that not long ago, Gou met Sultan Hamengku Buwono, the governor of Yogyakarta Special Region, to exchange views over his company's planned investment in the country.

Insiders pointed out that in addition to investing in the planned production plant, Hon Hai will also help Indonesia develop handset testing resources through technological transfers to keep unsafe, illegal cellphones out the domestic market. To that end, the firm is planning to build a testing center there.

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