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Hon Hai's next step to realize EV goals: acquiring Malaysian DNeX

Jun 11, 2021 | By EDN

Hon Hai announced on Thursday evening that it had invested MYR$108 million (about NT$780 million) in the Malaysian technology company DNeX, holding 5.03% of the shares, which is equivalent to indirectly investing in the Malaysian 8-inch wafer fab SilTerra. The move is highly regarded as Hon Hai's furthering attempt to cement its status in the electric vehicle industry.

Hon Hai announced that it has obtained 120 million shares of Dagang NeXchange Berhad (DNeX) through its Singapore subsidiary Foxconn Singapore Pte Ltd.

Hon Hai said that through the acquisition of DNeX equity, it will work with the company over development in semiconductors and electric vehicles. This investment is also one of Hon Hai's investment plans in the "3+3" field and could pave the way for the MIH alliance to expand investment opportunities in the ASEAN region.

In February this year, there were media reports that Hon Hai and DNeX had bid for the 8-inch fab SilTerra in Malaysia, but DNeX and Beijing Shengshi Investment Co., Ltd. would eventually team up to win the bid. Liu Yang-wei, chairman of Hon Hai, previously stated that he is indeed interested in bidding for Malaysia's 8-inch wafer fab, but he emphasized possibilities to attempt other cooperation methods.

The team formed by DNeX and Beijing Shengshi Investment acquired SilTerra from Malaysia's sovereign fund Khazanah for MYR$273 million (US$66 million) in February this year. After Hon Hai's defeat, Liu had said that he still wanted to develop a partnership with SilTerra.

It is understood that DNeX acquired 60% of SilTerra's equity, and the partner, Beijing Shengshi Investment as the legal representative of Beijing Integrated Circuit Advanced Manufacturing and High-end Equipment Equity Investment Fund Center, acquired the remaining 40% of the equity. DNeX was founded in 1970 and its main businesses include information technology, submarine communication cables, oil, and gas.

Despite winning the bid earlier in February, however, the DNeX team still needs an experienced semiconductor team to assist in the operation of the 8-inch wafer fab in Malaysia. Hon Hai's rich experience in semiconductors is exactly what the DNeX team needs.

In this regard, foreign investors believe that this will help Hon Hai maintain its competitive advantage in supply chain management and expansion of electric vehicle manufacturing while maintaining a buy rating for Hon Hai with a target price of NTD$168.

Foreign investment pointed out that Hon Hai's move is a way for Hon Hai to strengthen its 3+3 strategy and ensure the source of future automotive semiconductors, which will help Hon Hai maintain its competitive advantage in supply chain management and expansion of electric vehicle manufacturing. Further details on OEM capacity planning and operating resource arrangements will be announced after June.

Liu recently pointed out that the group's capacity is focused on small ICs, mainly 8-inch wafers or 6-inch wafers, in which capital expenditure will not be as huge as that of 12-inch wafer fabs. Hon Hai's market expansion plans include obtaining production means: now that it does, the group can attract cooperation from semiconductor factories as well.

He previously revealed that there are two business units responsible for packaging and testing. Among them, the S business group's high-end packaging and testing plant is slated for mass production by the end of this year. In terms of wafer fabs, they are currently negotiating cooperation with other wafer foundries.

He pointed out that the group has a good grasp of special semiconductor manufacturing processes such as CMOS image sensor components (CIS), silicon carbide (silicon carbide), and insulated gate bipolar transistor (IGBT).

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