Remember the 8th Wonder of the World?
Way back in late June, 2018 there was a groundbreaking ceremony in Mount Pleasant, Wisconsin where then President Trump pushed a golden shovel into the farmland soil, later calling the project the ‘8th Wonder of the World’. As was typical, he noted at the groundbreaking that ‘This is one of the great deals ever’ and was evidence that he was bringing manufacturing back to the US and restoring America’s industrial might. The project was initially to be a Foxconn (2354.TT) Gen 10.5 LCD panel factory, the only one of its kind in the US and was to employ 13,000 Wisconsin workers, enhanced by $4.5b in subsidies from the state and local governments., but even before the groundbreaking, questions as to the possibility of such a fab were already circulating, with much dependent on the supply of Gen 10.5 glass, which supplier Corning (GLW) would either have to ship from other production locations (too expensive and unwieldy), or build a co-located production line, which is what is typically done for glass of that size. Corning was either unwilling to commit to such a capital intensive project or was not convinced of its success, which caused Foxconn to trim back its factory expectations to a Gen 6 fab where substrate glass could be sourced from existing Corning production locations.
Foxconn originally denied the potential change and then confirmed, indicating that it had always planned on a ‘phased’ production timeline (companyspeak) and would still employ 13,000 people. Foxconn did outfit a few ‘innovation centers’ in Wisconsin, but most remained empty and still do. As the year progressed Foxconn indicated (likely accidentally) that the factory would be highly automated, with 90% of the potential hires being ‘knowledge workers’ rather than factory workers although their goal was still to hire 2,000 employees by the end of 2019 and 13,000 by the end of 2023, and in January 2019, the Foxconn representative indicated that building a TV panel factory ‘would not be competitive’ at that location. Over the next 18 months the company indicated that it would be building a plastic molding factory and packaging plant in Mount Pleasant, but after a discussion between President Trump and Foxconn CEO, the plans for a Gen 6 LCD fab reemerged with a target date of late 2020, and road work and site leveling began, only to grind to a halt as Foxconn missed its hiring goals and Scott Walker, the Republican governor at the time, lost his re-election campaign to Democrat Tony Evers.
While the project foundered, the new state administration began to reevaluate the initial agreement with Foxconn, especially after they missed their 2nd year hiring goal, leaving them with no subsidy relief and questions as to whether they would continue with the project. Fast forward to the end of April of this year when Wisconsin governor Tony Evers renegotiated the Foxconn contract on slightly better terms. The new contract made Foxconn eligible for $80m in performance-based tax credits over 6 years, a bit less than the original 2017 contract which allocated $2.35b in credits (with state and local infrastructure improvements it was closer to $4b), but now only if Foxconn hires 1,454 qualified workers at an average wage of $53,875 and invests $672m by 2026. The contract no longer specifies what Foxconn will be building on the site (the Gen 10.5 fab was specified in the original) as long as it meets the new goals, and the new contract also changes the contract length from 15 years (original) to 6 years, and allows the state to recover 100% of the incentives paid each year in case of a default.
While the renegotiation is certainly the key here, as it saves the state and its taxpayers an enormous amount of money over the next few years, we do take a victory bow, having been extremely doubtful that the project would ever live up to even the reduced expectations. This did not come because we had great insight into the project itself but because Foxconn has done this before, reducing or defaulting on major projects in a number of other countries. While the project was noteworthy in its scope and ability to generate headlines, the cost of display production in the US is relatively high, and even with the higher panel prices seen over the last year, the long-term price of LCD panels follows a downward trend. All in, Foxconn’s own history predicted the outcome.
Foxconn originally denied the potential change and then confirmed, indicating that it had always planned on a ‘phased’ production timeline (companyspeak) and would still employ 13,000 people. Foxconn did outfit a few ‘innovation centers’ in Wisconsin, but most remained empty and still do. As the year progressed Foxconn indicated (likely accidentally) that the factory would be highly automated, with 90% of the potential hires being ‘knowledge workers’ rather than factory workers although their goal was still to hire 2,000 employees by the end of 2019 and 13,000 by the end of 2023, and in January 2019, the Foxconn representative indicated that building a TV panel factory ‘would not be competitive’ at that location. Over the next 18 months the company indicated that it would be building a plastic molding factory and packaging plant in Mount Pleasant, but after a discussion between President Trump and Foxconn CEO, the plans for a Gen 6 LCD fab reemerged with a target date of late 2020, and road work and site leveling began, only to grind to a halt as Foxconn missed its hiring goals and Scott Walker, the Republican governor at the time, lost his re-election campaign to Democrat Tony Evers.
While the project foundered, the new state administration began to reevaluate the initial agreement with Foxconn, especially after they missed their 2nd year hiring goal, leaving them with no subsidy relief and questions as to whether they would continue with the project. Fast forward to the end of April of this year when Wisconsin governor Tony Evers renegotiated the Foxconn contract on slightly better terms. The new contract made Foxconn eligible for $80m in performance-based tax credits over 6 years, a bit less than the original 2017 contract which allocated $2.35b in credits (with state and local infrastructure improvements it was closer to $4b), but now only if Foxconn hires 1,454 qualified workers at an average wage of $53,875 and invests $672m by 2026. The contract no longer specifies what Foxconn will be building on the site (the Gen 10.5 fab was specified in the original) as long as it meets the new goals, and the new contract also changes the contract length from 15 years (original) to 6 years, and allows the state to recover 100% of the incentives paid each year in case of a default.
While the renegotiation is certainly the key here, as it saves the state and its taxpayers an enormous amount of money over the next few years, we do take a victory bow, having been extremely doubtful that the project would ever live up to even the reduced expectations. This did not come because we had great insight into the project itself but because Foxconn has done this before, reducing or defaulting on major projects in a number of other countries. While the project was noteworthy in its scope and ability to generate headlines, the cost of display production in the US is relatively high, and even with the higher panel prices seen over the last year, the long-term price of LCD panels follows a downward trend. All in, Foxconn’s own history predicted the outcome.
The Foxconn Site - May 12 - Source: Foxconn Aerials
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