Under the influence of multiple factors such as Chinese's labor cost advantage is not obvious and the international geopolitical economy is further fragmented, the global electronics industry chain has shown a trend of diversion and migration. Countries such as Vietnam, Mexico, and India are becoming regions where global electronic foundry service manufacturers continue to deploy. This article will take Hon Hai Technology Group (i.e., Hon Hai Precision Industry Co., Ltd., hereinafter referred to as "Hon Hai Group") as a representative to analyze the global dynamic layout of its production assets, so as to quantitatively peek at the trend of migration of the global electronics industry chain.
Who is Hon Hai Group?
Hon Hai Group ranks first in the world in the field of electronic foundry services (EMS), with a market share of more than 40% and a total number of employees worldwide with a seasonal peak of about one million. The business scope covers four major product areas: consumer smart products (mobile phones, TVs, game consoles, etc.), cloud network products (servers, Netcom, etc.), computer terminal products (computers, tablets, etc.), components and others (connectors, mechanical parts, etc.). Hon Hai Group's business covers the world, spanning three continents, with Taiwan as the center, extending to Chinese mainland, India, Japan, Vietnam, Malaysia, Singapore, the Czech Republic, Hungary, Slovakia, the United States, Brazil and Mexico, with production and service bases in more than 20 countries and regions. Hon Hai Group's market share exceeds 40%, and its production capacity distribution is dynamically changing, which is a good representative of the migration of the global electronics industry chain. Hon Hai Group has many subsidiaries, among which Hon Hai parent group, FII sub-group (FII) and FIH sub-group (Fuzhikang) contribute the most revenue, and others include: Hon Teng Precision, which focuses on precision design and manufacturing connector products, Xunxin Technology, which is committed to semiconductor packaging and testing, and Kanglian Biomedical, which is committed to precision health management, meristem testing, precision medical instruments, consumables sales, Medical storage, transportation, logistics and other services, Xunzhihai International is mainly engaged in the sales and distribution of IT products, as well as providing maintenance and service support for IT products.
Source: The company's 2023 financial report
Take a closer look at Hon Hai Group's global production capacity distribution
The chart below shows Hon Hai Group's non-current assets in recent years (excluding financial assets, equity-based investments and deferred tax assets), which can basically be regarded as the distribution of the Group's global productive assets.
Data source: the company's financial report, and non-network production. Due to the small number of non-current assets in Singapore, Japan and Ireland, the company consolidated to others
(1) In terms of overall growth rate, Hon Hai Group's non-current assets in 2023 will be NT$500.2 billion, an increase of NT$12.9 billion compared with NT$12.9 billion in 2022, an increase of 3%, which is lower than the growth rate of 12% in 2022. However, in fact, the significant decrease in its non-current assets in Taiwan is due to the merger of Asia Pacific Telecom and Yuanda Telecom under Hon Hai Group in 2023, and Hon Hai Group's 36.89% equity interest in Asia Pacific Telecom in exchange for Yuanda Telecom's shares on December 15, 2023, the group lost control of its subsidiary Asia Pacific Telecom, and the related assets and liabilities were excluded. If this effect is removed, and the productive assets of Taiwan, China in 2023 are planned to be on par with 2022, then the growth rate of Hon Hai Group's non-current assets in 2022 and 2023 will be 12% and 10%, respectively, which is relatively stable. (2) In terms of subdivided growth rate, from 2021 to 2023, Hon Hai Group's non-current assets in Chinese mainland and Taiwan have the lowest growth rate, at 11% and -50% respectively, which are the only two major regions where the growth rate is lower than the overall growth rate of the group. Looking at 2022 and 2023 alone, the growth rate of non-liquid assets in Chinese mainland and Taiwan is the lowest among major regions. On the contrary, Hon Hai Group's non-current assets in Vietnam, Mexico and India have shown rapid growth, with growth of 50%, 267% and 124% respectively from 2021 to 2023, which is much higher than other regions. It is worth mentioning that the growth rate of Hon Hai Group's non-current assets in the United States is not low, with a total growth of 23% in the past two years, far exceeding that of China. As for the main direction of production capacity in non-Chinese regions, on November 14, 2023, Hon Hai Group said at the corporate briefing that Vietnam will mainly increase the production capacity of computer terminals, Mexico will increase the production capacity of electric vehicle parts, India will increase the production capacity of consumer smart products, and the United States will focus on cloud network products. (3) In terms of absolute growth value, Chinese mainland, Mexico, the United States, and Vietnam are the four regions with the largest absolute growth in non-current assets in 2022, with NT$184, 139, 84, and 8.1 billion NT$, respectively; India, Chinese mainland, Mexico, and Vietnam are the four regions with the largest absolute growth in non-current assets in 2023, with NT$97, 89, 86, and NT$6.1 billion, respectively.
Source: Produced with non-network
In 2022 and 2023, Chinese mainland, Mexico, Vietnam and India were the four regions with the largest absolute growth in Hon Hai's non-current assets. It is reported that in the past two years, Hon Hai Group mentioned Chinese mainland as the region with the highest proportion of overall capital expenditure. However, due to its large fixed asset base in Chinese mainland and the largest annual depreciation volume, Chinese mainland may not be the largest in terms of the current value growth of non-current assets. (4) In terms of proportion, the author calculates that if the impact of the Group's loss of control over its Taiwanese subsidiary Asia Pacific Telecom is removed, the proportion of Hon Hai Group's non-current assets in Chinese mainland will show a steady downward trend, from 59.5% in 2021 to 56.8% in 2022 and then to 53.5% in 2023. Correspondingly, the proportion of non-current assets of Hon Hai Group in Vietnam, Mexico and India increased from 6.5%, 1.9% and 2.3% in 2021 to 7.9%, 5.8% and 4.2% in 2023, respectively.
Source: Produced with non-network
It can also be seen from the disclosure of the distribution of domestic and overseas assets of fixed assets and projects under construction of Hon Hai Group, that the proportion of fixed assets and projects under construction in China will drop from 84% in 2018 to 67% in 2023, also showing a downward trend.
Write at the end
In fact, it is not only global electronic foundry service companies such as Hon Hai Group that have increased their production capacity layout in overseas markets, but also local leading electronic foundry service companies. For example, when introducing its production capacity and business layout planning in Vietnam, India and Mexico, Luxshare Precision said: "With the adjustment of the macro environment and market changes, Luxshare has made corresponding layout and planning in Vietnam, India and Mexico. In general, the current consumer electronics business focuses on Vietnam, for the Indian market, companies need to fully consider the domestic demand of the Indian market, and in Mexico, the layout of the automotive and communication industries, mainly based on the consideration of favorable policies such as the United States, Mexico and tariffs. As far as the current situation and trend of production capacity layout are concerned, first, Luxshare has deployed about 20%-25% of its production capacity in the above three regions, and it may increase to about 30% in the future. Second, at present, a large part of Luxshare's production capacity is deployed in Vietnam, and we actively explore and invest cautiously in India. "Since the trend of reshaping the global electronics industry chain cannot be changed, it is crucial for enterprises to embrace the trend and actively adjust the production capacity layout to adapt to changes in market demand and the macro environment.