The iPhone 7 probably won’t even be out until 2016, but already Foxconn Technology Co., Ltd (TPE:2354) (OTCMKTS:FXFCOF) may be trying to attract extra business from making the smartphones. There’s a report this morning that suggests Foxconn might be trying to get into the display business.
Foxconn in talks
The Wall Street Journal reports that the Chinese supplier is in talks with the Zhengzhou government about an investment that could go as high as $5.7 billion. The report cites unnamed sources who say the talks are in the early stages and involve building a factory that would manufacture displays for high-end smartphones.
Odey's Brook Absolute Return Fund was up 10.25% for the third quarter, smashing the MSCI World's total return of 2.47% in sterling. In his third-quarter letter to investors, which was reviewed by ValueWalk, James Hanbury said the quarter's macro environment was not ideal for Brook Asset Management. Despite that, they saw positive contributions and alpha Read More
The sources said that currently, Foxconn and the government are talking about ways to split the investment. They also said that there is no solid investment proposal for the factory as of yet. If Foxconn is able to seal a deal with the Zhengzhou government, it may end up being the company’s largest direct investment in manufacturing high-end components.
There’s also a chance that Foxconn could approach Apple Inc. (NASDAQ:AAPL), its biggest customer, and other customers for investments into the facility.
Foxconn targets iPhone 7 displays?
If the supplier does get into making high-end smartphone displays, then it could be in the running to make the screens for the iPhone 7 in a couple of years. Currently Apple buys its displays from Sharp Corporation (TYO:6753) and Japan Display Inc (TYO:6740) in Japan and LG Display Co Ltd (KRX:034220) in South Korea.
The screens are the most expensive components on the iPhone. The Wall Street Journal estimates that it costs about $45 for the iPhone 6 displays and $52.50 for the iPhone 6 Plus displays.
Foxconn has already been making some of the iPhone’s components, including the cables and metal casings. However, smartphone screens bring higher margins because they are harder to manufacture.
Foxconn looks to expand
Apple’s business makes up almost half of its sales. Foxconn reported a 1% annual sales growth rate last year, a significant decline from the 53% rate the Chinese supplier enjoyed just five years ago. The company’s operating margin fell from 4.4% in 2009 to 2.8% last year.
Apple has also begun to shift some of its iPhone and iPad production to competitors like Pegatron Corporation (TPE:4938) (OTCMKTS:PGTRF) and Wistron Corporation (TPE:3231). As a result, Foxconn management probably feels the need to look for new revenue streams. Apple could also see a benefit from shifting some of its display production to Foxconn as it would enable it to further diversify its supply chain.