Indispensable Electronics Manufacturer
As Apple closes in on a $3 Trillion market cap the company that puts together 80% of all iPhone 5s and 40% of all consumer electronics in the world has been trading sideways for years. The indispensable electronics manufacturer in the world is Foxconn, also known as Hon Hai Precision Industry Co., Ltd. The company is headquartered in Taiwan but is the largest single employer in mainland China and has assembly plants in India, Malaysia, Thailand, Indonesia, Vietnam, Brazil, Mexico, Spain, the USA, and Taiwan itself. The company is, by far, the largest contract maker of electronics in the world. The stock trades in Taipei but one can purchase its ADR in the USA.
Is Foxconn Part of Apple’s Risk Profile?
We often talk about the risks to the US market in terms of the acronym, DRINC which stands for Democrats, Russia, Iran, North Korea, and China. More than 10,000 Russian troops have pulled back from the border with Ukraine and talks with both the USA and NATO are scheduled for January, 2022. Thus the immediate risk of a Russian invasion and the possibility of NATO forces going head to head with Russians is diminished. Meanwhile, China continues its belligerence in regard to Taiwan. We have often mentioned that Apple manufactures the bulk of its iPhones and other devices in China and that their supply chain could be crippled if China and the USA go head to head over Taiwan or any other issue. The fact of the matter is that the company that manufactures those iPhones is Foxconn which is China’s biggest single employer. If Apple (Foxconn) gets shut down in China, Foxconn has production facilities across the globe as it assembles four out of ten electronic items in the world. Whatever happens with China and Apple, Foxconn will be part of the picture.
No Options Trading for Foxconn
Although Foxconn stock may bear watching, like the canary in the coal mine, for indications of problems for Apple, you cannot trade options on its ADR that trades it the USA. Foxconn has gotten so big that it makes one think of General Electric which is still a dominant technology company but a really poor investment.
This stocks heyday was in the first years of the century when it traded at over $200 a share and fell to the $40 range during the Financial Crisis and, after rising above $100 a share a couple of times, has traded in the $65 range for three years. It was not hurt by the Covid crash but only jumped a bit with the recovery despite doing business in a sector that has prospered during the repeated shutdowns.
Foxconn and Chinese Politics
A lot of press has been devoted to how Xi Jinping has cracked down on prominent figures and business leaders in China. Share prices of Chinese companies have gone down as the “dear leader” has further consolidated his control of the Chinese Communist Party and country to the point of rewriting school books to revise history and give him credit for much of China’s economic success. Two things protect Foxconn from this sort of bullying. The first is that Foxconn is headquartered in Taiwan and is perfectly capable of moving more and more production out of China (which they appear to be doing already). The second is that Foxconn is China’s biggest private employer. With the Covid shutdowns, slowdowns, supply chain nightmares, rising Chinese debt, and more on their plate, Chinese leaders do not need to put a couple hundred thousand more people out of work. Thus, the somewhat-protected nature of Foxconn in relation to China and its status as a major employer might just be the “protection” that Apple needs for its supply chain when things get hot between China and the USA.