Foxconn takes stake in SK Group’s IT unit

SK C&C is at the heart of SK Group’s governance structure

Terry Gou

Foxconn’s largest unit said on Monday that it had paid Won381bn ($375m) for a 5 per cent stake in a Korean technology services company, less than a week after Terry Gou asked investors to “be patient” as his group sought to diversify beyond contract manufacturing for Apple and other consumer electronics companies.

Foxconn, also known as Hon Hai Precision Industries, said in a statement that the investment in SK C & C would help it develop “new business opportunities”.

Mr Gou, Foxconn chairman, has been under pressure from investors including Aviva, Axa and Calstrs, who have questioned the group’s transparency and long-term strategy. At Foxconn’s annual general meeting last week, Mr Gou promised to continue to diversify his group’s revenue streams, but asked for investors to be patient.

SK C & C is SK Group’s IT services company and is at the heart of the group’s governance structure. It holds a 31.8 per cent stake in SK Holdings, which in turn holds stakes in many other SK Group units such as SK Telecom and SK Hynix. Chey Tae-won is the biggest shareholder of SK C & C and he controls the whole SK Group through his stake in SK C & C.

The stake sale will reduce Mr Chey’s stake in SK C & C from 38 per cent to 33.1 per cent. He is likely to use the proceeds from the stake sale to pay back his personal debt, SK C & C said. He is serving a four-year prison term since January last year after he stole Won45.1bn ($42.5m) from SK units including SK C & C, but he received a Won8bn pay packet including a bonus of Won5.6bn from SK C & C last year before he resigned as chairman of the group and several of its affiliates including SK C & C earlier this year.

Mr Gou visited SK C & C’s headquarter about two weeks ago and has shown “a lot of interest in our telecoms infrastructure solution technology,” said Lee Joon-ho, spokesman for SK C & C.

Foxconn is most famous for the contract manufacturing work it performs for companies such as Apple, which outsources production of iPhones, iPads and other products to the Taiwanese group’s vast factory complexes in China.

Last week Foxconn and Pegatron, a rival Taiwanese assembler, confirmed that they were recruiting tens of thousands of new workers in a hiring spree analysts believe to be related to new Apple products.

Foxconn’s business model has exposed it to rising labour costs and worker unrest in China. In 2010, Foxconn raised wages sharply after a series of worker suicides at a large factory complex in southern China. Mr Gou later pledged to increase the number of robots used in his China factories – part of a wider trend that has recently made China the world’s biggest market for robotic equipment.

At the time Mr Gou said Foxconn would increase the number of robots used in its factories more than 100-fold to 1m units, exceeding its human workforce. But that target has slipped and the group now employs 1.2m people.

Last year Foxconn secured a 4G telecoms licence in Taiwan, in perhaps the clearest sign of the group’s intent to diversify its business activities. Apple currently accounts for about half of Hon Hai’s revenues.

The group has recently reached agreements to manufacture touchscreens for Elon Musk’s Tesla Motors and robots for Japan’s SoftBank and also manufactures Amazon’s new Fire smartphone.

Foxconn missed its revenue target for last year but still posted a 13 per cent increase in net income to T$107bn. Hon Hai’s share price has risen almost 50 per cent over the past year.

SK C & C shares closed unchanged at Won 166,500 after rising as much as 5.1 per cent after the stake sale was announced.

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