Foxconn Chairman Terry Gou Cuts Growth Target as Size Brings ‘Biggest Challenge’ – Bloomberg Businessweek

World’s Largest Contract Manufacturer of Electronics Cuts Target in Half as Demand for Apple iPhones and iPads Fail to Offset Slowing Computer Sales

NEW YORK--(BUSINESS WIRE)--Foxconn Technology Group Chairman Terry Gou cut his long-term growth target for the world’s largest contract manufacturer of electronics by half as demand for Apple Inc. iPhones and iPads fails to offset slowing computer sales.

“If I merge or acquire, I will be more conservative in what I need and what I really get from it”

Gou, who founded the Taiwanese company in 1974, will tell managers that he’s lowering Foxconn’s annual sales growth target to 15 percent from the 30 percent fixture set for more than a decade, the chairman said.

“How many companies have grown this big and still grow 30 percent?” Gou, 59, said in an interview at his office in Shenzhen, China yesterday for Bloomberg Businessweek’s upcoming issue (on newsstands Friday, Sept. 10). “Fifteen percent is also big.”

The reduced target, like the spate of suicides that’s kept him in Shenzhen since May, may underscore the challenges of managing a business that generates more sales than Apple or Dell Inc., and employs almost 1 million workers. Taiwan’s richest man is planning to expand production in the U.S. and enter fields such as biotechnology to sustain growth.

“I don’t think investors are ready to hear news of such a big cut in the growth target,” said Vincent Chen, who rates shares of Foxconn’s flagship Hon Hai Precision Industry Co. unit “hold” at Yuanta Securities Co. in Taipei. “These problems, including lower market growth, are giving Gou the biggest challenge he’s ever faced.”

The full story is online at: http://www.businessweek.com/news/2010-09-05/foxconn-s-gou-cuts-target-as-size-brings-biggest-challenge-.html

Underperforming Stock

Hon Hai has fallen 18 percent in Taipei trading this year, underperforming the island’s Taiex Index, after the deaths of at least 10 workers led Gou to raise wages and accelerate factory relocation plans in China. The stock’s tripled this decade, giving Hon Hai a larger market value than electronics companies such as Sony Corp. or Panasonic Corp.

Worldwide growth in shipments of computers, Foxconn’s main business, will slow to 12 percent in 2011 from 18 percent this year, according to estimates at Taipei-based Capital Securities Corp.

Gou, who’s run Foxconn since its founding, said he has a succession plan that may be announced in three years. He plans to keep his job until his 1-year-old daughter gets married, he said.

Gou said he expects sales to meet the 30 percent growth target this year as customers recover from the global recession. Revenue at Hon Hai Precision Industry Co., Taipei-based Foxconn’s flagship unit, will increase 39 percent to NT$2.72 trillion ($85 billion), according to the average of 18 analyst estimates compiled by Bloomberg.

Bigger Than Apple, Dell

Those sales would trump those of Gou’s customers. Analysts forecast $63 billion for Apple, $62 billion for computer-maker Dell and the $54 billion for mobile-phone producer Nokia Oyj, according to average estimates compiled by Bloomberg.

Gou is considering biotechnology companies as acquisition targets, though he’ll slow Foxconn’s pace of purchases, he said, declining to identify any company names. Foxconn is also planning to expand in industries such as nanotechnology and media content, he said.

Still, Foxconn plans to drive growth mainly through internal expansion after overpaying for some acquisitions, he said.

“If I merge or acquire, I will be more conservative in what I need and what I really get from it,” Gou said. “On one company, I spent too much money to acquire it, then realized my internal knowledge is better than their internal knowledge.”

More coverage of Foxconn will appear in the upcoming issue of Bloomberg Businessweek, on newsstands Friday, Sept. 10, 2010.