Foxconn Expands into Financial Services in China

18 Nov

Top Apple supplier Foxconn has set up six financial-services companies in China over the past year that are providing loans and other financing to electronics component suppliers, The Wall Street Journal reported Tuesday.

The Taiwan-based company is aiming to expand beyond its core low-margin business of contract electronics manufacturing as assembly fees comprise less than 1% of the sticker price of an iPhone, which costs more than $800 in China. Among the businesses Foxconn aims to expand into are component manufacturing, e-commerce, robotics and financial services.

“This is where we have a niche advantage,” said Jack Lee, managing director of the business unit, Foxconn Financial Service Platform, in an interview with The Wall Street Journal. “We know the suppliers’ business statuses better than anyone because they are our customers.”

Targeting the electronics-supplier niche rather than the broader consumer market makes sense for Foxconn, experts say. As the world’s No.1 electronics contract manufacturer and China’s top exporter, the company is connected to most parts of the global electronics supply chain.

Since its establishment a year ago, Foxconn’s financial-services unit has done more than one billion yuan ($157 million) in transactions and has about half a billion yuan in outstanding financing, Lee said, adding that Foxconn has provided financing to more than 100 component suppliers so far.

Currently, the unit’s loans are funded entirely by Foxconn, but the company hopes to bring other strategic investors on board in the next few years and go public within five years.

“We are starting out with financing our own suppliers, but our goal is to expand to other parts of the supply chain,” Lee said.

Foxconn is also setting up a 300 million yuan private-equity fund that will invest in Chinese startups, Lee said.

Foxconn is expanding in areas such as supply-chain financing to reduce its reliance on Apple, said Tzyy Loon Ng, an analyst at S&P Capital IQ, in an interview with The Wall Street Journal.

“They need to prepare for the day if sales from Apple slow,” he said. “It is better for them to prepare early.”

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