Foxconn Technology Group (OTC US: FXCNY) created more uncertainty for its suppliers on Friday when it announced that it’s recommitting to building a liquid crystal display monitor (LCD) factory in Mount Pleasant, Wisconsin according to the Wall Street Journal.
Hon Hai Precision Industry Co., Ltd., trading as Foxconn Technology Group and better known as Foxconn, is a Taiwanese multinational electronics contract manufacturing company. It is the world’s largest contract electronics manufacturer and one of the largest employers worldwide.
According to Curbed.com, Foxconn scored a huge $4 billion economic development package a year ago to build the manufacturing facility in southeastern Wisconsin, promising to invest $10 billion in a plant that would create 13,000 jobs. Since then, Foxconn announced it may dramatically cut back hiring plans – even after city and county governments bought out local homeowners via eminent domain.
After a call between Foxconn chairman Terry Gou and President Donald Trump on February 1, the factory was reported to be on again.
Nonetheless, many industry participants are doubting the viability of Foxconn establishing a manufacturing supply chain in the United States when much of its production remains in East Asia.
“You’re adding so many costs [by moving the supply chain to the U.S.] compared to moving things [LCD components] in Southeast Asia. It makes a lot more sense to do it there than in the U.S., especially with a potential trade war,” said Henry Byers, director of pricing and partnerships at Steam Logistics. He estimated that an Asia-based manufacturing supply chain with midstream production in the U.S. would add $10,000 in cost for every container of products shipped.
According to Crain’s Chicago Business, the materials needed to assemble LCD products are not manufactured in the U.S. at a commercially viable scale. LCD manufacturing requires several internal components including glass, liquid crystal (which redirects light to create an image), electronic circuits, polarizing films (optical filters) and an LED backlight (illumination). Current suppliers of these materials include Corning Inc (NYSE: GLW), LG (KRX: 066570), Merck (FWB: MRK) and Samsung (KRX: 005930), all of whom manufacture these components in East Asia.
The article also said that uncertainty of Foxconn’s commitment to manufacture LCDs in Wisconsin may prevent component suppliers from building factories in the area. If Foxconn were to leave Wisconsin, it would likely remove the only source of business for these suppliers.
“In the supply chain, what you want is consistency and predictability. There’s a tremendous amount of uncertainty around the Foxconn plant,” said Dr. Anthony Pagano, associate director of the Center for Supply Chain Management and Logistics, University of Illinois at Chicago. He also said that suppliers may commit to serving the Wisconsin plant only if and when the production of LCD monitors starts.
Without a local supply chain for the Wisconsin plant, it’s expected that Foxconn will import LCD components from its current suppliers in China, Japan, Korea and Taiwan. That is, assuming the plant manufactures LCD monitors at all.