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Is Foxconn Coming to the United States?

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Foxconn continues its global expansion.

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MINYANVILLE ORIGINAL Foxconn (TPE:2354) may be opening factories in the US. The Taiwan-based company, also known as the parent company Hon Hai Precision (TPE:2317), has been in the news recently for its reports on the difficulty of producing Apple (NASDAQ:AAPL) products, such as the iPhone 5.

According to a DigiTimes report (via AppleInsider), Foxconn is evaluating cities such as Detroit, Michigan, and Los Angeles, California, as possible locations for the factories. The US-based factories will not produce Apple devices because of their complexity. The factories will likely produce LCD TVs, which involves a simpler and highly automated process. The DigiTimes listed "market watchers" as its sources.

Foxconn has already begun investing in the US. The same report highlighted recent statements by Foxconn chairman Terry Guo at a public event. He stated that the company has plans to establish a training program for engineers from the US. The program will teach the engineers about Foxconn's processes of product design and manufacturing in China and Taiwan along with teaching the engineers the Chinese language.

The company is in talks with the Massachusetts Institute of Technology to develop the program.

Foxconn's Growth

Foxconn has been expanding its global operations, and it has performed well financially over recent months.

According to the New York Times, Reuters and analysts calculated Foxconn's net profit for the third quarter of the calendar year, and the company earned 30.3 billion Taiwan dollars, or $1.04 billion, which represents a 58% increase from the prior-year quarter. Compared to the second quarter, profits were up 140%. For the first nine months of 2012, the company made a profit of 57.8 billion Taiwan dollars, or $1.98 billion, which represents an increase of 24% from the same period last year.

A move to the United States may seem odd, though, because the company has relied on cheap labor in China. However, labor costs have risen in China, and Foxconn workers have seen their salaries increase by 30% since 2010, cutting into margins. Base monthly salaries in the Chinese factories will increase from $350 to $630, or 82%, by the end of year. As a result, Foxconn has started setting up factories in other countries. Indonesia is on the list with its cheap labor; workers receive an average monthly wage of $113.

In a Wall Street Journal report yesterday, Indonesian Trade Minister Gita Wirjawan mentioned during an Asian-European summit hosted in Laos that Foxconn "production facilities" should open within a year in Indonesia. Foxconn will likely pay its workers an average of $100 per month.

Foxconn plans on investing $5 billion to $10 billion in Indonesia over five to 10 years. The first factory will open in Modern Cikande Industrial Estate in Banten province in west Java with an initial goal of producing 3 million handsets per year.

The second phase of the Foxconn's expansion in Indonesia will include constructing factories located in an area of 400 hectares beginning in July of 2013. Following the conclusion of this phase, Foxconn expects to produce 10 million mobile phones and other electronics, largely for markets in Indonesia.

The company has also expanded its operations in Brazil, announcing that five new factories will be constructed there. Foxconn has been in Brazil since 2005 and already has five factories in the state of Sao Paulo. A factory in Jundiai assembles Apple products. Like Indonesia, many of the devices manufactured in Brazil will reach domestic markets, and the factories will give Foxconn clients Lenovo Group (HKG:0992) and Hewlett-Packard (NYSE:HPQ) closer proximity to consumers in Brazil.

AppleInsider highlighted that Apple CEO Tim Cook said in May that he wants Apple products to be manufactured in the US. The prospect of device manufacturing in the US still appears remote, though. He mentioned that very few tool-and-die makers in the US exist while many exist in China. Apple decided a decade ago to outsource its manufacturing because the company felt others could accomplish it better.

The bulk of products for Apple and Hewlett-Packard are still manufactured in China. Foxconn invested $210 million in a factory in Jiangsu, China, in May of this year.

Twitter: @ChrisWitrak
No positions in stocks mentioned.
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