TAIPEI/HONG KONG (Reuters) - Foxconn Technology Group, best known for assembling Apple Inc’s iPhones, will decide by year-end whether to branch off into unconventional new territory: making solar panels in China.
It is an industry plagued by overcapacity that outstrips demand, and panel prices have tumbled by more than two-thirds in the past two years. Yet some analysts say Foxconn may end up timing it right, ready to make a move just as the sector shows some signs of stabilizing.
Foxconn, the trading name of Taiwan’s Hon Hai Precision Industry Co Ltd, has been testing the market for two years but has revealed little about its Fox Energy solar unit. The company has one small solar panel factory in eastern China, and has also held talks with the southwestern province of Guangxi about building solar power plants.
“We aim to make a decision about whether or not we will enter this market by the end of this year,” Foxconn spokesman Simon Hsing told Reuters. “We believe renewable energy is a potentially good trend. It looks like a good project. This is an industry we probably need to know more about.”
Hon Hai has not disclosed its investment in solar, which analysts reckon is small, but with $22.7 billion in cash on the balance sheet as of March, it has the wherewithal to expand.
The company is seeking to cut its reliance on Apple, which accounted for an estimated 60 percent of Hon Hai revenue that exceeded $100 billion last year. It reported a second-quarter net profit of T$16.98 billion ($567.15 million) on Tuesday, up 35 percent from a year earlier and exceeding analysts’ expectations.
The same strengths that have served Foxconn well with Apple - assembly efficiency, cost-control expertise and an international footprint - may also help it succeed in solar.
“Based on my recent contacts with several officials at Foxconn, they are still examining the industry to see whether the market still suits them, whether the market will become big enough for them to get in,” said Jason Huang, a Shanghai-based solar analyst with Taiwan-based consultancy TrendForce.
Solar panel demand fell sharply after the 2008 global financial crisis, which forced many governments to slash subsidies for solar power. The solar industry is still grappling with severe overcapacity, with China alone boasting an annual capacity of 55 gigawatts (GW) versus total global demand of 35 GW estimated for this year.
But market conditions have brightened recently.
Chinese solar panel makers such as LDK Solar, Suntech and Trina Solar have been helped by an agreement between Beijing and Brussels last month, which averted what could have been a crushing trade war.
The longer-term future depends largely on whether China can boost domestic demand and Japan keeps buying solar panels to help offset the loss of nuclear power shut off after the Fukushima Daiichi nuclear disaster in 2011.
Foxconn first indicated its interest in expanding its solar presence in 2011, when it signed a preliminary deal with top Chinese solar silicon producer GCL-Poly Energy Holdings Ltd to set up solar-related ventures in northern China. But they have made no headway.
GCL-Poly declined to comment.
In March, the Guangxi government said it would work with Foxconn on a plan to expand the firm’s businesses in the province, including a proposal to build five solar equipment plants and 20 solar farms. The announcement, posted on the ministry’s Web site, gave no details.
Zhu Hanwen, an official at the Commerce Ministry’s branch in Guangxi, told Reuters that Foxconn was still negotiating with the local government on the proposed solar projects but “no projects have been launched yet”.
Foxconn’s Hsing confirmed that the company had not signed any contracts with the Guangxi government on solar investment.
If Foxconn makes a big foray into solar manufacturing, it may become a formidable industry player, thanks in part to its cost-control expertise.
Foxconn has come under fire in recent years for working conditions in its factories in China, which employ 1.2 million people to mass produce electronics components and gadgets such as iPads and iPhones.
Its enigmatic founder and chairman Terry Gou, in the wake of a series of suicides among young workers at Foxconn China factories in the last few years, has talked about plans to put a million robots in its factories. It has also been moving its China factories inland, including Guangxi, in search of lower labor costs as wages soar in coastal cities.
And with a global footprint that far surpasses other industry players, Foxconn has the potential to embed itself as deeply in the worldwide solar supply chain as it has in smartphones and computers. As trade disputes continue to keep the sector on high alert, Foxconn can take advantage of the massive scale to shift production elsewhere and sidestep export restrictions and tariffs.
It could also play a role as a panel contractor rather than launch products under its own brand.
Fox Energy signed a deal in April to manufacture up to 350 MW of solar modules at a plant in Mexico for SunEdison Inc, a solar services provider controlled by MEMC Electronic Materials Inc, according to a statement on the U.S. company’s website, which Foxconn confirmed.
($1 = 29.9390 Taiwan dollars)
Editing by Emily Kaiser