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Hon Hai touts plan B if Unigroup investment fails to secure approval

2022-08-11
Focus Taiwan
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Hon Hai Chairman Liu Young-way. CNA photo
Hon Hai Chairman Liu Young-way. CNA photo

Taipei, Aug. 10 (CNA) Liu Young-way (劉揚偉), chairman of Taiwan-based manufacturing giant Hon Hai Precision Industry Co., said on Wednesday the company has a backup plan if it fails to secure regulatory approval in Taiwan for its investment in China's chip conglomerate Tsinghua Unigroup.

At an investor conference, Liu said Hon Hai believes the 5.38 billion Chinese yuan (US$795.86 million) investment in Tsinghua Unigroup adheres to the law, but if the government has concerns about the investment and does not give retroactive approval, the iPhone assembler has a contingency plan. However, he provided no details on the plan.

In mid-July, Hon Hai, also known as Foxconn globally, announced its subsidiary Shenzhen-based Foxconn Industrial Internet Co., which is listed on the Shanghai Stock Exchange, made the investment through Beijing Zhiguangxin Holding Co. Beijing Zhiguangxin Holding took over Tsinghua Unigroup's equity under a restructuring arrangement.

Controversial deal

In Taiwan, Hon Hai's investment raised concerns that the investment would help to strengthen China's chipmaking capability and boost its competitive edge internationally, a move some argued will compromise national security, at a time when Taipei is forging closer ties with Washington amid escalating threats from Beijing.

Earlier Wednesday, the Financial Times cited an unnamed senior Taiwanese government official involved in national security issues as reporting the authorities want to force Hon Hai to "unwind" its investment in Tsinghua Unigroup.

After a recent restructuring, debt-embattled Unigroup spun off its chipmaking operations including Yangtze Memory Technology Corp. and Wuhan Xinxin Semiconductor Manufacturing Co., Liu said.

Currently, Unigroup mainly runs non-chip manufacturing operations, such as IC design and servers, router and exchange board production, which meet Hon Hai's needs for future business growth, he added.

In addition, the investment aims to set up business ties with members of Unigroup as suppliers or clients for future cooperation, he added.

Hon Hai is upbeat about Unigroup's outlook after its business restructuring, Liu noted.

Hon Hai is already one of the largest foreign investors in China, operating a broad production base and employs more than 1 million workers who roll out tech gadgets for international brands such as Apple Inc.

Before the investor conference started, Hon Hai recorded its highest ever second quarter net profit of NT$33.29 billion, up 12 percent from a year earlier and up 13 percent from a quarter earlier.

Upbeat outlook

Although there are signs of weakening global demand for smartphones, Liu said he remains upbeat about the second half of this year as Hon Hai focuses on medium to high end smartphones, which are expected to be less impacted by growing inflation.

As a result, Liu forecast Hon Hai's gross margin -- the difference between revenue and cost of goods sold -- will improve in the second half of this year from 6.22 percent in the first half.

In terms of the third quarter, Liu said Hon Hai's consolidated sales will remain little changed from the second quarter, but will rise from a year earlier, with cloud/networking product sales expected to grow significantly from a year earlier.

In the second quarter, Hon Hai's consolidated sales hit NT$1.51 trillion, up 12 percent from a year earlier and up 7 percent from a quarter earlier.

For 2022 as a whole, Liu said Hon Hai's sales will grow slightly from a year earlier, compared with a forecast made in May that revenue would stay little changed year-on-year with revenue generated from cloud/networking, computing and electronics components expected to continue to grow.

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