Foxconn’s plans continue to evolve in changing market

Reuters report suggests focus is turning away from LCD panels

The view from the southeast corner of the Foxconn construction site in Mount Pleasant. Image courtesy of Curt Waltz/Aerialscapes.com

Last updated on July 2nd, 2019 at 09:11 pm

Foxconn Technology Group on Wednesday confirmed its plans for a $10 billion investment in Mount Pleasant had again shifted, raising questions about the incentives offered by state and local governments and whether thousands of promised jobs would become a reality.

Louis Woo, special assistant to Foxconn chairman Terry Gou, told Reuters in an interview that the company would no longer focus on making LCD panels in Wisconsin. He was quoted as saying Foxconn would not build a factory in the state.

But then Mount Pleasant and Racine County officials issued a statement that said their conversations with the company contradicted the Reuters report.

“Contrary to what was reported by Reuters, Foxconn reiterated to us, today, its commitment to building an advanced manufacturing operation in Wisconsin,” the statement from Mount Pleasant village president Dave DeGroot, Racine County executive Jonathan Delagrave and Racine County Economic Development Corp. executive director Jenny Trick said.

Woo and other Foxconn executives have said the company’s investment is about creating an ecosystem around advanced display technologies more than it is about building a single manufacturing facility.

When Foxconn originally announced its plans, at the White House in July 2017, the company said it would build a 20-million-square-foot Gen 10.5 thin-film-transistor LCD fabrication plant in Wisconsin. The Gen 10.5 plant would have required a $1 billion Corning glass plant to be co-located on the site and would have produced the largest displays in the world.

But after Corning said it would need two-thirds of the cost for any new plant to be subsidized, Foxconn said it would instead build a Gen 6 plant in Mount Pleasant. The change allowed the company to make smaller screens and glass could be sourced from a Corning plant in Kentucky.

Wednesday’s announcement marked another step away from the original vision of “Wisconn Valley,” as Gou and former Gov. Scott Walker dubbed the project. In the Reuters interview, Woo said Foxconn would create a “technology hub” in Mount Pleasant focused on research with some assembly and packaging operations.

To attract the Foxconn development Walker and the Republican-led state Legislature approved up to $3 billion in state incentives, tied to hiring and capital investment in the project. Local incentives and infrastructure improvements to accommodate the project totaled about $1.5 billion.

Joel Brennan, secretary-designee of the Wisconsin Department of Administration, issued a statement Wednesday that said Gov. Tony Evers administration would evaluate the change and had already been in contact with the company.

“The administration is in regular, weekly communication with senior leadership at Foxconn, however, we were surprised to learn about this development,” Brennan said.

Mark Hogan, secretary and CEO of the Wisconsin Economic Development Corp., also issued a statement that touted Foxconn’s ability to adapt to changing technology and said the company’s contract provides flexibility for making business decisions while protecting taxpayers.

“Our ongoing discussions with company officials reflect Foxconn’s continued commitment to the State of Wisconsin,” Hogan said.

Senate Minority Leader Jennifer Shilling, D-La Crosse, went in a different direction, pointing to Foxconn projects in Pennsylvania, Indonesia, India, Vietnam and Brazil that did not live up to expectations. She said Republicans should have put stronger protections in the Foxconn deal.

“Their negligence has put home-grown businesses at a competitive disadvantage while committing taxpayers to decades of economic costs and liabilities for a project that continues to shrink in size and scope,” Shilling said.

“It’s disappointing to see Democrats rooting for the failure of Foxconn and trying to undermine
this historic opportunity for our state,” state Assembly Speaker Robin Vos, R-Rochester, and Senate Majority Leader Scott Fitzgerald, R-Juneau, said in a joint statement. “Democrats don’t want thousands of family-supporting careers; they want a political talking point…We don’t blame Foxconn for altering plans in an everchanging technology business. It’s also not surprising Foxconn would rethink building a manufacturing plant in Wisconsin under the Evers Administration. The company is reacting to the wave of economic uncertainty that the new governor has brought with his administration. Governor Evers has an anti-jobs agenda and pledged to do away with a successful business incentive for manufacturing and agriculture.”

Among the things that are not clear from the Reuters interview with Woo is what kind of facilities Foxconn will actually build in Mount Pleasant. The village turned over control of nearly 800 acres to the company last year as part of a development agreement calling for the company to build more than 20 million square feet of buildings. A 120,000-square-foot multi-purpose building has already been completed on the site and more than 4 million cubic yards of dirt have been moved. Last fall, crews were preparing a 3-million-square-foot building pad for the first fabrication facility.

“As Foxconn has previously shared, they are evaluating exactly which type of TFT technology will be manufactured in Wisconsin but are proceeding with construction on related manufacturing, assembly and research facilities on the site in 2019,” the statement from Racine County officials said.

Foxconn did not make Woo or other executives available for interviews on Wednesday, but did issue a statement. The company said it remains committed to creating 13,000 jobs, but added changes in the global market environment meant the Mount Pleasant project needed to be changed.

“While the project’s focus will be adjusted to meet these new realities, the Wisconsin project remains a priority for our company,” the statement said.

The changing market environment includes the possibility of slowing global growth and sharp declines in display prices. The price for a 65-inch LCD panel coming out of a fabrication facility has fallen from $408 in June 2017 to $223 currently, according to Bob O’Brien, a partner at Display Supply Chain Consultants, which tracks the display industry.

“The supply and demand balance has shifted pretty dramatically since early 2016,” O’Brien said, although he added that a number of other Gen 10.5 projects had already been announced before Foxconn. “This was pretty well predictable in 2016 and 2017.”

Tim Sheehy, president of MMAC, acknowledged the project and markets are changing more dynamically than supporters could or should have anticipated. He added the dynamics of the market would outpace the desire to put Wisconsin at the heart of new technologies and the state needs to adapt.

“The last thing we want Foxconn to do is to commit to building a buggy whip plant while the first vehicles roll off the assembly line,” he said. “Clearly we are getting something different than we originally signed up for, but I think it’s not due to ignorance of the contract, it’s due to their desire to meet their customers’ needs in the changing economic conditions.”

In the Reuters interview, Woo pointed to the high cost of labor in the U.S. as one of the reasons the company is turning away from LCD panel production. It is not the first time Woo has highlighted the economic challenges the project faces. In remarks to the 2017 MMAC all-member meeting, Woo said wages in the U.S. are four to six times higher than Asia and the company would need to go beyond making televisions.

Foxconn’s statement Wednesday indicated the company would promote research and development of advanced industrial internet technologies at the Mount Pleasant complex, including applications for education, health care, entertainment, sports, security and smart cities.

Those industries are among the ones Foxconn has repeatedly said would be at the heart of its 8K+5G ecosystem, a reference to the next generations of screen resolution and cellular data networks. In his 2017 MMAC remarks, Woo called on businesses to bring their domain expertise to partner with Foxconn in those areas.

Foxconn says it is broadening the base of its investment in Wisconsin to set the project up for long-term success. It previously announced a venture capital fund with Johnson Controls International, Northwestern Mutual and Aurora Healthcare. The company also committed to a $100 million gift to the University of Wisconsin-Madison and is working with ginseng growers in the state.

But O’Brien questioned if an operation focused on research and developing technology could reach the 13,000 jobs the company is promising.

“Based on what they’re describing, I have a hard time seeing how they ever get to the jobs targets that is in the deal (with the state),” he said.

Sheehy said Foxconn’s contract with the state protects taxpayers if the company’s job and capital investment projections don’t pan out.

“It’s going to have a different impact on Wisconsin if this is not a large manufacturing facility,” Sheehy said. “But I think one that’s going to be very positive.”

He pointed to the possibilities of having rapid prototyping, research and development, engineering, molding and packaging operations in the state. If the company does not create a fabrication facility it might also address some of the air and water quality concerns of the project’s critics, Sheehy said.

The state incentives offered to the company may scale down if Foxconn’s investment shrinks, but the implications for the state’s finances are not immediately clear. The economic analysis used to justify the deal assumed the creation of nearly 11,500 jobs would be created at suppliers, accounting for more than one-third of state and local tax revenues.

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Arthur Thomas
Arthur covers manufacturing for BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.