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source from:WSJ
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Foxconn Unit Plans IPO That Could Raise 1 Billion dollars
Exact amount company wants to raise hasn’t been decided
By ALEC MACFARLANE in Hong Kong and ALYSSA ABKOWITZ in Beijing
July 5, 2016 6:20 a.m. ET
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HONG KONG—Taiwan’s Hon Hai Precision Industry Co., which assembles most of Apple Inc.’s iPhones, filed for an initial public offering of its cable and connector unit in Hong Kong that could raise up to 1 billion dollars as it seeks to tap the growing demand for its products in cloud computing.
The unit, called Foxconn Interconnect Technology Ltd., could raise between 500 million dollars and 1 billion dollars from the IPO, according to people familiar with the matter, although a final decision on the exact amount the company wants to raise hasn’t been decided.
The company makes key components that go into electronic devices, transferring data at high speeds. Demand for those products could grow in the coming years as cloud computing services become more widespread and need faster connectors to link servers. Hon Hai, also known as Foxconn, announced plans to spin off and launch an IPO of its interconnect business in June 2013, although the original plan was to list the business on the Taiwan Stock Exchange.
The company’s desire to raise its global profile made Hong Kong a more attractive market in which to list, according to a person familiar with the matter. Other tech companies that make computer components also trade in Hong Kong, making it a familiar bet for investors in the market, the person said.
The company is likely to list in the third or fourth quarter of this year, one of the people said.
It is unclear whether Foxconn will continue to maintain majority control of the company following the offering, the person added. A spokesperson for Foxconn didn't respond to requests for comment.
Foxconn Interconnect Technology ranked as the largest connector maker in Greater China by revenue in 2015 and the fifth-largest in the world, with an 11.7% and 4.2% share of those respective markets, according to Frost & Sullivan, a business consulting company.
The company’s electronic connectors and cables are used in computers, consumer electronics and automobiles. It has factories across the globe from Taiwan to Mexico.
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Analysts say the need for connectors to become faster and more nimble as companies generate and store more big data is increasing, with upgrades becoming a crucial part of the next generation of internet data centers. “All this data needs storage and servers to process so the need for high-speed transportation is important,” said Amy Teng, research director at Gartner in Taiwan. “The margins will be good.”
The company’s revenue has declined in recent years, to 2.33 billion dollars in 2015 from 2.51 billion dollars in 2013. The company said in its filing that the decreases were mainly due to the maturity of its customers’ product portfolios, particularly in the global mobile and wireless devices end market, and an increase in pricing pressure. The firm has invested in newer technologies, such as solar panels and robotics, but those investments haven’t generated significant revenue.
The Foxconn unit said in its filing that it plans to use the proceeds from the IPO for a range of purposes, including product development, potential acquisitions and investment in technology for use in data centers for big data and cloud computing.
Bank of America Corp.’s Merrill Lynch unit, China International Capital Corp. and Credit Suisse Group AG are handling the offering.
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