TAIPEI -- Key iPhone assembler Foxconn on Wednesday defended its investment in Beijing-backed Tsinghua Unigroup, saying the public has "misunderstood" the nature of the Chinese tech conglomerate.
Foxconn, the world's biggest contract electronics manufacturer, invested nearly $800 million to take a 10% stake in Tsinghua Unigroup, but did not seek prior approval for the deal as required by Taiwanese regulators.
"It is a simple financial investment. We happened to have this opportunity to invest [in Tsinghua Unigroup] via a fund," Foxconn Chairman Young Liu told investors during an earnings call. "The public has a misunderstanding. The Tsinghua Unigroup we invested in is not the Tsinghua Unigroup that people used to know."
In attempting to play down concerns over the deal, Liu stressed that Tsinghua Unigroup no longer has chip manufacturing capabilities. He argued that since the company's restructuring, it no longer controls Chinese memory chip giant Yangtze Memory Technology or Wuhan Xinxin Semiconductor Manufacturing.
"The new Tsinghua Unigroup has a not-so-bad profitability, and that's why we participated," Liu said. Foxconn has a backup plan if the deal fails to gain regulatory approval, he said, without elaborating.
Taiwan's Investment Commission said on Wednesday that it is still reviewing Foxconn's investment of 5.38 billion yuan ($796 million) for a 10% stake in Tsinghua Unigroup. Taiwanese companies are required to seek approval to invest in critical technologies, such as chip development and server technologies, in China in order to protect sensitive technologies and trade secrets.
Cross-strait tensions are running particularly high after U.S. House Speaker Nancy Pelosi visited Taipei last week. Beijing responded to Pelosi's trip, which included meeting with several key tech industry figures, by launching massive military drills around the island.
On the business front, Liu said that he remains relatively cautious for the July-September quarter and that Foxconn will continue to closely monitor uncertainties brought on by geopolitics, inflation and the pandemic.
Nevertheless, the company still expects its revenue for the current quarter to grow on the year, thanks to its wide product portfolio of consumer electronics, enterprise equipment and data center servers. Foxconn is gearing up for production of the new iPhone lineup this month ahead of its autumn launch.
On the chip shortage front, Liu said the situation has vastly improved, but some components and chips used in servers and networking equipment are still in short supply.
Yang Yuanqing, chairman of the world's biggest personal computer maker, Lenovo Group Holding, shared a similar view on Wednesday, saying the chip crunch has improved overall but is not over. "We still see some supply constraints in low-end chips that block our [infrastructure solutions group] or data center business," Yang said.
Demand for consumer electronics, a major pillar of Foxconn's business, is expected to decline after a robust previous quarter and is likely to reach a level similar to the previous year.
Foxconn reported net income of 33.29 billion New Taiwan dollars ($1.1 billion) for the April to June quarter, up 12% from a year earlier. Its operating income jumped 37% on the year to NT$44 billion during the period, while its revenue grew a better-than-expected 11.3% on the year to reach a record of NT$1.51 trillion over the same period.
Foxconn attributed the performance to stronger-than-expected demand for smart electronics products, which includes its iPhone assembly business.
Foxconn is also making headway with its electric vehicle ambitions. On Tuesday it announced a deal to build "smart" electric tractors for U.S.-based Zimeno DBA Monarch Tractor next year. Foxconn sees electric vehicles as a key growth area and aims to turn it into a NT$t1 trillion business by 2026.
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