Terry Gou pledges stocks to invest in building a factory. Is Foxconn's ambition to dominate the TV market price beginning to emerge?

Recently, the Nihon Keizai Shimbun quoted Taiwanese media reports that Terry Gou, chairman of Hon Hai Precision Industry, pledged more than 400 million shares of Hon Hai to a bank in January, and quoted analysts as saying that the move may be related to investing in a new panel factory.

In early 2017, Internet TV manufacturers were overwhelmed by a new round of exchange rate fluctuations and rising raw material prices. In order to protect the profits of their own products, Xiaomi and LeTV first set off a trend of Internet TV price increases, and other manufacturers had no choice but to follow the footsteps of the "big brother" and also raised the price of Internet TVs. From the current situation, it seems that this new round of "price war" has been "stillborn" before it even started.

After this wave of "price war" receded, we found a very abnormal phenomenon. Foxconn Group, which is famous for its high-intensity physical labor and exploitation of cheap labor in China, chose to go against the trend and decided to invest in large panel factories for TVs in China and North America, investing 45 billion to build 10th or 11th generation LCD panel factories. The main purpose is to reduce manufacturing costs and expand sales in China and Southeast Asia, which are transitioning from CRT TVs to LCD TVs. This series of measures is really puzzling. Why does Foxconn Group still choose to work hard to maintain its current low-price strategy when the market is about to move out of the wild battlefield of low prices?

It is not difficult to understand the ebb of the "price war" as cost deviation is controlled

In fact, the factors that restrict the selling price of a TV, especially an Internet TV, are no longer a secret. Whether it is exchange rate fluctuations caused by a country joining the SDR currency basket, insufficient production capacity of imported screen panels or components, or even rising labor costs, they are all important factors leading to price increases.

As the Internet TV market grows stronger, as early as 2013 when the concept of Internet TV was proposed, companies lurking in the Internet industry such as LeTV, Youku and Baofeng emerged one after another, intending to gain greater market prospects with their massive amounts of high-quality content. When the video industry was caught in a copyright war, Youku took the lead in testing the waters, prompting Internet platforms to launch high-quality programs such as "Xiao Shuo", "Luoji Siwei" and "Qi Pa Shuo", which triggered a surge in Internet video programs.

However, the rise of Internet culture in China does not work for traditional panel manufacturer LG Display (LGD). In 2016, LGD refused to provide OLED panels to Internet TV companies in order to ensure that the reputation of OLED would not be adversely affected by the price war of domestic smart TVs. However, it encountered the tightening policies of LCD panel suppliers such as Samsung, resulting in a long-term shortage of TV LCD panels in the second half of the year. In the face of such a tight supply chain, the previously promoted "price war" was like a flash in the pan, and price increases seemed to have become inevitable.

At the same time, the rising prices in the metal industry and the reduction of cheap labor in recent years have poured cold water on the Internet TV market, which was already slightly out of control. With the continuous increase in upstream costs, domestic Internet TV manufacturers have taken advantage of the opportunity to extricate themselves from the thankless price war. The two price increases of Xiaomi TV since 2016 just show that more and more manufacturers have decided to give up their voice in the low-end market. It is not difficult to understand the ebb of the price war since then.

The “Purpose” Behind Opening a New Panel Factory

Since price wars cannot bring more benefits to manufacturers and will also lead the market into an embarrassing situation of disorderly competition, what is the purpose behind Foxconn Group's determination to mortgage its company shares to the bank to build a panel factory? Why does Foxconn Group want to get rid of this hot potato?

1. Occupy the vacant high-generation panel market. At present, there are no high-generation panels that can be mass-produced in mainland China. BOE's 10.5-generation line has just been capped and is expected to start mass production in 2018. The construction of Huaxing Optoelectronics' 11-generation line factory has just started. At this time, Foxconn Group chose to merge with Sharp, which can use the mature 10-generation panel technology of foreign countries at no cost to solve the domestic panel shortage market. It coincides with Foxconn Group's strategy of taking the initiative and occupying the market opportunity.

2. The domestic low-end market is still profitable. Since 2013, Internet TV has taken advantage of the opportunity of urbanization and stimulated users to upgrade their TVs at low prices, becoming a hot spot for consumption in the industry. At the same time, with the popularization of smart TVs in recent years, the domestic low-end market seems to have no extra resources for Internet TV manufacturers to play. However, with the further acceleration of the domestic urbanization process, the consumption potential in first- and second-tier cities will quickly shift to third- and fourth-tier cities in China. The domestic transition from CRT TVs to LCD TVs has not yet been completed, and the low-end TV market is still profitable. Therefore, Foxconn is still happy to maintain the domestic "price war" environment that is on the verge of breaking by opening new panel factories.

  In 2016, the output of smart TVs increased by 11% year-on-year, which shows that although the market is slowly changing from the "barbaric growth" of blindly pursuing market share and ignoring the sustainable development of products, the demand for smart TVs by ordinary people has not weakened. In a sense, Foxconn Group's financing and setting up factories this time is to use the sales of products in the "low-price war" to drive its own industrial development. Regardless of whether the domestic TV market is ready to move towards high-end, the low-end products that focus on being affordable will not be affected for a while. It can be predicted that the low-end market will continue to chase the high-end market in the future.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.