Wrong Place, Wrong Time
Foxconn (2354.TT) Apple’s (AAPL) primary assembler and the largest global OEM purchased a 10% stake in China’s Tsinghua Unigroup (state) through an $800m investment by one of its subsidiaries, Foxconn Industrial Internet (601138.CH), giving the company more direct access to fabless mobile processor producer UNISOC (pvt) and memory producer YMTC (pvt), both part of Unigroup. While Unigroup defaulted on $3.6b in bonds last year and was sorely underfunded, investments by a number of Chinese funds stemmed the negative financial tide, although plans for fab expansion projects were put on hold.
The tension level between the Chinese and Taiwanese governments has escalated in recent weeks as we have noted previously, and has placed the US government in the middle of the conflict, focusing considerable attention on the region, Foxconn’s home base. With such tension, the Taiwan Ministry of Economic Affairs is said to be doing a detailed review of the purchase, specifically evaluating national security issues, while the US government is exerting additional pressure on the Taiwan government given that senior management at UNJISOC previously worked for China’s largest semiconductor foundry SMIC (688981.CH), which has been placed on the US entities list.
The official review has yet to start but unsourced feedback has indicated that there is a very small chance that the deal will be approved by the Taiwan government on security concerns alone, although Foxconn has stated that they have reported all the necessary information about the investment to the local Taiwan authorities and are updating the overall investment situation to the necessary government officials. With so much pressure both inside and outside of Taiwan, it would seem that there is little chance that the deal will survive intact, with Foxconn already facing fines for making the investment without government approval. Now the recent China/Taiwan tensions have placed the deal in an even greater spotlight, giving more scrutiny to the shareholders of the entity that FII invested in, which became the owner of Tsinghua Unigroup after its restructuring. Some of the owners of this entity are said to be Chinese state-owned companies that could have ties to the Chinese military or are affiliated with companies on the US entities list. Foxconn has put itself in the middle of a global political battle in order to strengthen its supply chain and while it seemed like a good idea earlier in the year, we expect the company had no idea how public the transaction was to become. Wrong place, wrong time.
The tension level between the Chinese and Taiwanese governments has escalated in recent weeks as we have noted previously, and has placed the US government in the middle of the conflict, focusing considerable attention on the region, Foxconn’s home base. With such tension, the Taiwan Ministry of Economic Affairs is said to be doing a detailed review of the purchase, specifically evaluating national security issues, while the US government is exerting additional pressure on the Taiwan government given that senior management at UNJISOC previously worked for China’s largest semiconductor foundry SMIC (688981.CH), which has been placed on the US entities list.
The official review has yet to start but unsourced feedback has indicated that there is a very small chance that the deal will be approved by the Taiwan government on security concerns alone, although Foxconn has stated that they have reported all the necessary information about the investment to the local Taiwan authorities and are updating the overall investment situation to the necessary government officials. With so much pressure both inside and outside of Taiwan, it would seem that there is little chance that the deal will survive intact, with Foxconn already facing fines for making the investment without government approval. Now the recent China/Taiwan tensions have placed the deal in an even greater spotlight, giving more scrutiny to the shareholders of the entity that FII invested in, which became the owner of Tsinghua Unigroup after its restructuring. Some of the owners of this entity are said to be Chinese state-owned companies that could have ties to the Chinese military or are affiliated with companies on the US entities list. Foxconn has put itself in the middle of a global political battle in order to strengthen its supply chain and while it seemed like a good idea earlier in the year, we expect the company had no idea how public the transaction was to become. Wrong place, wrong time.
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