Taiwan's Hon Hai Precision Industry Co. Ltd. defies easy categorization. Hon Hai considers itself an EMS provider but is also the world's fifth-largest connector supplier. And while the company seems to have the ability to serve many customers, it has chosen to work with only top-tier OEMs such as Apple, Dell, Hewlett-Packard, Motorola, Nokia, Sony, and Sun.
No one, however, doubts Hon Hai's growing impact. Founded in 1974 to produce plastic products, the company, known by the trade name Foxconn, has become a multibillion-dollar enterprise that relies on low-cost but value-added, vertically integrated manufacturing, organic growth through R&D rather than acquisitions, and an increasing emphasis on advanced technology.
While sales at most electronics companies tumbled in 2001 and are not expected to show much recovery this year, Hon Hai's total of $4.7 billion in the first three quarters of 2002 has already exceeded its sales of $4.1 billion for all of 2001. Earnings in the first three quarters were $420 million, within calling distance of the $450 million recorded all of last year.
Some industry observers say they haven't witnessed such a success story in recent memory.
"I don't know how to compare them," said Ken Fleck, an analyst at Fleck Research Associates, Santa Ana, Calif.
Fleck attributes Hon Hai's success largely to its hard-driving chief executive, 52-year-old Terry Gou.
"For another company to become a Hon Hai, it will take a lot of energy and extremely skilled management," said Ron Bishop of Bishop & Associates Inc., St. Charles, Ill. "The question is, do they have another Terry Gou?"
A number of attempts to reach Gou were unsuccessful, perhaps affirming what some say is the company's sometimes secretive nature. One U.S.-based Hon Hai executive, however, did make clear that Hon Hai is focusing overwhelmingly on the EMS side of its personality.
"We're primarily a contract manufacturer," said Gary Fabrizio, director of Western sales, San Jose.
Jeff Bloch, an analyst at iSuppli Corp., El Segundo, Calif., estimates that more than 70% of Hon Hai's business is contract manufacturing, placing it in competition with the likes of Celestica, Flextronics, Sanmina/ SCI, and Solectron.
But Hon Hai is also one of the world's five top global connector manufacturers, according to Fleck Research, and in recent years has expanded into cable assemblies and memory components and subsystems, using its own molds and tools.
Once customers are in the fold, analysts say Hon Hai goes out of its way to serve them, using a direct-sales model rather than distributors and manufacturers' representatives. And because it has only a select list of customers, it can carry the stock that only they require, rather than stockpile lots of unneeded parts, iSuppli's Bloch said.
With its formidable clout among top-tier OEMs, Fabrizio acknowledges that some EMS providers now consider Hon Hai enough of a threat that they no longer keep the company on their list of strategic suppliers.
But losing that business might not matter if Hon Hai can continue to satisfy its elite customers.
Like its EMS rivals, Hon Hai benefits from a low-cost manufacturing strategy. It established plants in China in 1993, considerably before the blitz of OEMs and EMS providers now setting up shop there. Today, Hon Hai carries out about 95% of its manufacturing in China, Fabrizio said.
And while some of the newer Far East suppliers can probably undercut Hon Hai on component prices, analysts say its combination of low-cost, vertically integrated, value-added manufacturing is difficult to beat.
"Hon Hai may not be the lowest-cost supplier anymore, but it provides added value," Bishop said.
While the company is best known for serving the computer industry, it is aggressively targeting other sectors like telecom and consumer and upgrading its technology for these markets.
In January, Nokia began outsourcing wireless phone production to Hon Hai. In February, Hon Hai said it would go beyond low-tech systems manufacturing to encompass areas such as system-on-chip design and nanometer technology.
In August, Hon Hai announced it would invest up to $1 billion to build a Generation 5 thin-film-transistor (TFT) LCD plant in Taiwan. In doing so, the company joins an increasingly crowded Taiwan LCD market that includes AU Optronics, Chi Mei Optoelectronics, Chunghwa Picture Tubes, Hannstar Display, and Quanta Display.
But Fleck doesn't doubt Hon Hai's ability to pull off its high-tech strategy. "They have labs to do research and development, and more than 3,000 degreed engineers including more than 100 Ph.D.'s," he said.
Hon Hai is also apparently looking at the automotive industry, particularly in China. While Fabrizio could not verify it, he said, "I have to believe that Gou is looking at autos."