Foxsemi­con looks for­ward to en­ter­ing bat­tle­grounds of the fu­ture


In 2007, when LED light­ing sud­denly be­came a trendy busi­ness, the am­bi­tious Tsao es­tab­lished an ad­vanced op­to­elec­tron­ics busi­ness group to lead the com­pany into that mar­ket. Rid­ing the LED light­ing craze, Foxsemi­con emerged as an in­vestor fa­vorite on Tai­wan’s emerg­ing mar­ket and drew strong praise from Gou, one of its ma­jor share­hold­ers.

The LED sec­tor can be ex­tremely volatile, how­ever. Chi­nese ven­dors in­vested heav­ily in equip­ment at the time to boost their pro­duc­tion ca­pac­i­ties and then en­gaged in fierce price com­pe­ti­tion to gain a share of the mar­ket.

Af­ter a lit­tle over a year of good times, Foxsemi­con was dragged down by the price war and posted ma­jor losses. Once one of Terry Gou’s fa­vorite man­agers, a de­jected Tsao stepped down. Un­sure where to turn to at first, Gou de­cided as 2011 ap­proached to call on 30-year vet­eran Liu Yin-kuang, who was set to re­tire, to right the ship.

“I wanted to re­tire. (Gou) asked me if I was will­ing to keep go­ing on another stage. He gave me two days to think about it,” re­calls Liu in Foxsemi­con’s Zhu­nan head­quar­ters.

Liu, a grad­u­ate of the Hwa Hsia In­sti­tute of Tech­nol­ogy, joined Hon Hai in 1986 when the com­pany’s rev­enues were low and its fac­tory in Tucheng was still a sim­ple cor­ru­gated steel struc­ture. Liu got his start there as a me­chanic.

He worked in the en­gi­neer­ing and stamp­ing de­part­ments and was re­spon­si­ble for au­to­ma­tion and man­u­fac­tur­ing pro­cesses. When Hon Hai built its first over­seas pro­duc­tion com­plex in Shen­zhen in the late 1980s, Liu was sent over to as­sist with the pro­ject.

“That night, I got a call at 6 p.m. to go over there and help build the bare­bones fac­tory. I didn’t sleep for three days. The Longhua fa­cil­ity was just a cor­ru­gated steel struc­ture,” Liu re­mem­bers with a laugh.

When Foxsemi­con built a fac­tory in Songjiang in China in 2004, Liu was de­ployed there and made re­spon­si­ble for con­struc­tion.

Un­like the bold and elo­quent Tsao, Liu is con­ser­va­tive and prag­matic. When he took over Foxsemi­con and re­viewed the com­pany’s busi­nesses with his man­age­ment team, he de­cided to elim­i­nate the LED busi­ness and con­cen­trate on the pro­duc­tion of semi­con­duc­tor equip­ment and au­to­ma­tion.

“I did not see any point where we could stop the bleed­ing. More than 1,000 LED com­pa­nies sud­denly sprouted up in China, and our pric­ing was sim­ply not com­pet­i­tive. The losses run up by the LED busi­ness eroded our prof­its. It was not our core com­pe­tency, and we needed to get back to what we do best,” Liu says, re­call­ing what led him to make the de­ci­sion and how he com­mu­ni­cated it to the man­age­ment team.

“It was the right move,” says a pres­i­dent of a pub­licly listed com­pany in the in­dus­try. “Foxsemi­con re­turned to its core com­pe­tency, and with Hon Hai’s back­ing, they can adopt ver­ti­cal and hor­i­zon­tal in­te­gra­tion mod­els to pro­duce ev­ery­thing from ma­chine parts to com­plete sys­tems. They can in- crease their scale of oper­a­tions.

Af­ter get­ting rid of the mon­ey­los­ing LED busi­ness, Foxsemi­con re­turned to prof­itabil­ity last year. Its af­ter-tax net profit of NT$300 mil­lion from rev­enues of NT$4.6 bil­lion was the high­est in three years.

“But NT$4.6 bil­lion is no more than the sin­gle-day rev­enues of a busi­ness group within the Hon Hai Group,” Liu says, amused at how small his com­pany is within a group that had con­sol­i­dated sales of more than NT$4 tril­lion in 2014.

Dif­fer­ent Strate­gies to Di­ver­sify


The com­pe­ti­tion over tech­nol­ogy in the global semi­con­duc­tor sec­tor has grown fierce in re­cent years, with ru­mors of po­ten­tial merg­ers in­creas­ingly com­mon as big play­ers look to in­vest in ad­vanced pro­cesses.

Faced with in­tense price com­pe­ti­tion, Tai­wanese semi­con­duc­tor ven­dors have tried to sup­port do­mes­tic equip­ment mak­ers, hop­ing that by in­creas­ing the per­cent­age of equip­ment made at home they can re­duce their re­liance on ex­pen­sive im­ported ma­chines.

“In South Korea, which is our fiercest com­peti­tor, com­pa­nies such as Sam­sung sup­port home­grown equip­ment man­u­fac­tur­ers. About 15 per­cent of their ma­chines are made at home. Not even 5 per­cent of the equip­ment used by Tai­wanese semi­con­duc­tor mak­ers is made in Tai­wan,” says Clark Tseng, a se­nior re­search man­ager at SEMI (Semi­con­duc­tor Equip­ment and Ma­te­ri­als In­ter­na­tional) Tai­wan.

Be­cause each ma­chine’s preci- sion has a sig­nif­i­cant im­pact on a semi­con­duc­tor foundry’s yield rate, the in­dus­try has a very high en­try thresh­old. Ac­cord­ing to Tseng, the key tech­nolo­gies at present are con­trolled by ma­jor in­ter­na­tional equip­ment mak­ers such as U.S.-based Ap­plied Ma­te­ri­als and Nether­lands-based ASML.

It’s there­fore not hard to un­der­stand why Foxsemi­con clutches tightly to Ap­plied Ma­te­ri­als just as ri­val MIC (Mar­ketech In­ter­na­tional) sticks closely to ASML. Work­ing as part­ners with the big ven­dors and selling them com­po­nents, mod­ules and sys­tem as­sem­blies has be­come the des­tiny of these Tai­wanese com­pa­nies.

At present, 80 per­cent of Foxsemi­con’s rev­enue comes from the semi­con­duc­tor in­dus­try, a de­pen­dence that Liu sees as overly risky. He de­cided to build on the com­pany’s core com­pe­ten­cies to de­velop other profit en­gines, and his team felt that tar­get­ing health care equip­ment and plant au­to­ma­tion of­fered the best prospects.

“When we vis­ited ma­jor Amer­i­can man­u­fac­tur­ers of med­i­cal equip­ment, we quickly re­al­ized that many re­searchers came from the semi­con­duc­tor sec­tor and knew of our com­pany. We re­al­ized that many of the pro­cesses and tech­nolo­gies were sim­i­lar, so the en­try thresh­old isn’t that high,” says Kevin Chiu, se­nior as­so­ciate vice pres­i­dent of new busi­ness de­vel­op­ment at Foxsemi­con.

Foxsemi­con has al­ready de­vel­oped a mo­bile med­i­ca­tion cart that has been tested for more than half a year at Na­tional Tai­wan Univer­sity Hos­pi­tal, Taipei Vet­er­ans Gen­eral Hos­pi­tal and the Hon Hai-backed YongLin Healthcare Foun­da­tion. The bat­tery used in the cart is a bat­tery with an un­in­ter­rupt­ible power sup­ply made by another Hon Hai sub­sidiary with a fac­tory in Zhu­nan, UER Tech­nol­ogy.

When doc­tors and nurses make their rounds with the mo­bile cart in the fu­ture, they will be able to con­nect to the hos­pi­tal’s cloud and have ac­cess to the pa­tient’s elec­tronic records. They will also be able to print out pre­scrip­tions on the cart so that fam­i­lies can pick up medicine for their loved ones.

With Terry Gou fre­quently sound­ing the bat­tle cry of au­to­ma­tion re­cently, Foxsemi­con is also try­ing to de­velop a plant au­to­ma­tion busi­ness, leav­ing out­side observers won­der­ing if it is hop­ing to han­dle the au­to­ma­tion of the fac­to­ries of Hon Hai flat panel sub­sidiaries or elec­tron­ics assem­bly lines.

“Hon Hai is our big share­holder. We hope that in the fu­ture it will be­come our big cus­tomer,” Liu freely ad­mit­ted to cu­ri­ous an­a­lysts at the July 8 con­fer­ence.

Foxsemi­con’s new busi­ness ini­tia­tives must be bat­tle-tested in the mar­ket­place be­fore any­one can know if they will suc­ceed. But in­dus­try vet­eran Liu Yin-kuang, once on the brink of re­tire­ment, is truly ex­cited to open new bat­tle­grounds for the com­pany. Trans­lated from the Chi­nese by Luke Sa­batier Ad­di­tional read­ing se­lec­tions can be found at http://english.

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