PYMNTS-MonitorEdge-May-2024

Foxconn Eyes China’s Financial Services Market

The Chinese tech giant Foxconn Technology Group is looking to move from contract electronics manufacturing to financing the supply chain itself.

The Wall Street Journal reported Tuesday (Nov. 17) that Foxconn, which is the largest contracted manufacturer for Apple, “has quietly set up half a dozen financial services companies in China” through the past year that are providing loans to suppliers and electronics components makers. The firm will repackage the loans to sell them to investors, WSJ reported, quoting Jack Lee, managing director of the Foxconn Financial Service Platform.

[bctt tweet=”Foxconn will repackage the loans to sell them to investors.”]

In his interview with WSJ, Lee said, “This is where we have a niche advantage. We know the suppliers’ business statuses better than anyone because they are our customers.” He said the unit has done more than 1 billion yuan in transactions since being founded a year and a half ago, across 100 component suppliers.

The move to embrace financing means that Foxconn will rely less on its traditional business model in an industry where margins can struggle to break low single digits. As for Apple, noted WSJ, assembly fees such as those paid to Foxconn can represent less than 1 percent of the cost of an iPhone (at $800 in China).

At present, the Foxconn financial unit’s loans are funded by the parent company, but the longer term goals are to bring outside investors into the fold over the next few years and an IPO within five years. The company has licenses in place from the local Chinese governments to provide loans and equipment leasing, among other activities. Foxconn is also in the midst of establishing a 300 million yuan PE fund with an eye on Chinese startups.

Foxconn joins other firms in China, such as Alibaba, that have been looking to compete with the traditional banking systems in the country, offering more attractive financing options with better rates. Internet companies have been using data collected from the mobile devices themselves to determine borrower creditworthiness.

PYMNTS-MonitorEdge-May-2024