Apple's largest, most notorious supplier and partner is Hon Hai Precision Industry Co of Taiwan, better known as Foxconn, employer of over 1 million mainland Chinese and, until now, the perfect foil for Apple with its elegant minimalist designs and elitist culture.
There is nothing elitist about Foxconn. Huge factories, cities really, churning out marvelous devices for slivers of income. On the average iPhone or iPad or iPod, Apple captures somewhere between 75 and 85% of the value sold. The Chinese get pennies. But they watched and they learned and they bode their time. Everyone knew this moment was coming, but we suspect no one dreamed it would be this soon.
In purchasing a portfolio of patents from Japan's NEC, Foxconn is all but announcing its intent to start competing with Apple for the margins and influence that comes with being a creator of intellectual capital instead of merely the cheap labor export platform that won the right to assemble devices based on someone else's ideas. Brawn to brain.
Now, given its size and prominence in the global production firmament, Foxconn is probably not foreswearing interest in manufacturing for others. At least not entirely. And given the trend in China towards demanding IP in return for market access it was not as if this was a bolt out of the blue. But it serves notice that Foxconn thinks it is ready to make the next move up the value chain. Apple has other 'frenemies' in its supplier network, companies that are both suppliers and competitors. But none are as large, as comprehensive in their capabilities - and as well placed to take them on. JL
China Times reports:
Hon Hai Precision Industry Co, the world's largest contract electronics maker, has acquired patents related to flat panel production from Japan-based NEC Corp.
In an announcement filed to the Taiwan Stock Exchange (TWSE) Friday, Hon Hai Precision said through its subsidiary, Gold Charm Ltd, the company is spending 9.45 billion Japanese yen (US$122 million) to acquire the patents from NEC.
Hon Hai Precision said the deal is scheduled to be completed by Dec. 28.
The Taiwanese manufacturer said the patent acquisition aims to enrich its flat panel patent portfolio and strengthen its capability in research and development of advanced technology in that particular area.
While Hon Hai Precision did not disclose further details about the patent acquisition in the statement, market analysts said the company is eyeing touch panel technology owned by NEC.
In August, Hon Hai Precision Chairman Terry Gou met with NEC President Nobuhiro Endo in a visit to Japan, during which he agreed to buy liquid crystal display patents from the leading Japanese IT service and product provider.
Gou, under his own name, has acquired a 46.5% stake in an advanced 10th generation flat screen plant, located in western Japan. He acquired it from another Japanese consumer electronics giant Sharp for about US$800 million.
In addition to the acquisition of a stake in the Sharp flat panel plant, Hon Hai Precision and three of its affiliates had signed an agreement in March to buy an early 10% stake in Sharp for 67 billion Japanese yen, or 550 yen per share.
However, Sharp's shares have tumbled almost 70% since then, hitting a low of 164 yen on Aug. 15 amid concerns over its bottom line, which prompted the two companies to renegotiate the terms of the deal, including the acquisition price.
Foreign wire services reported the renegotiations are expected to continue into March 2013 as Taiwanese authorities have deep concerns that a plunge in Sharp's share price will impact the performance of Hon Hai Precision and its affiliates in the local bourse.
According to the reports, Sharp President Takashi Okuda had said earlier that even if the stake acquisition deal falls apart, his company will continue to cooperate with Hon Hai Precision.
Okuda said both sides are considering the feasibility of working with each other in smartphone and display development.
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