Why Taiwan’s Foxconn Is Investing $800 Million In China’s Chip Champion

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Taiwanese manufacturing giant Foxconn plans to invest about $800 million in Chinese chip conglomerate Tsinghua Unigroup, a move that will further expose the world’s largest contract assembler of consumer electronics to the fast-growing electric vehicle market.

Tsinghua Unigroup could offer Foxconn access to its mobile chipset or memory expertise, says Neil Mawston, executive director with market research firm Strategy Analytics. Battery-powered vehicles run on semiconductor chips, while memory modules help run other automotive applications.

Tsinghua Unigroup reorganized earlier this month after defaulting on billions of dollars worth of bonds and analysts say it still needs help. “Tsinghua is struggling with debt and needs friends with spare cash,” Mawston says.

On the other side of the table, he says, “Foxconn is searching for new revenue streams beyond its core activity of building iPhones for Apple.

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“Foxconn is stepping into semiconductors because the global semiconductor industry for smartphones, EVs and other products is greatly undersupplied and offers big opportunities for growth and supply-chain control,” Mawston says.

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The Taiwanese company also known as Hon Hai Precision and founded by billionaire Terry Gou has pushed into the production of EVs over the past two years.

It made a merger-and-acquisition deal this year to develop EV semiconductors. Last year, Foxconn reached agreements with Los Angeles-based startup Fisker and global auto-making giant Stellantis. Fisker and Foxconn would make electric cars in the U.S., while Stellantis would co-develop automotive chips with Foxconn.

The assembler best known for making Apple products at its factories in China plans as well to open a plant in Malaysia, and it’s considering whether to launch one in Saudi Arabia to make EV parts among other gear.

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But this investment would not be a co-development partnership like Foxconn’s other EV deals and may instead take shape as a traditional investment for purely financial gain, says Brady Wang, a Taipei-based analyst with market intelligence firm Counterpoint Research. “Of course, there are advantages, but in terms of using production capacity, that’s an impossibility,” he says.

The company now needs approval from the Taiwan Economy Ministry’s Investment Commission for the investment. The commission often frowns on deals involving Chinese firms with connections to China’s government or military. Tsinghua Unigroup was founded in 1988 by Tsinghua Holdings, a business unit of Tsinghua University in Beijing, one of China’s elite universities.

“We have to wait for the results of this review,” Wang says.