Info on Maquilas

Sony sold Tijuana to Foxconn

Plunging TV prices challenge makers
Competition prompts Sony's Baja decision

Wednesday, September 2, 2009 at 2 a.m.

Sony's decision this week to sell its flat panel television factory in Tijuana to a Taiwan-based manufacturing conglomerate shows how TV makers are looking for new ways to compete as prices continue to plunge.

“I think from Sony's perspective, it has been a challenge in the U.S. market because it's so competitive,” said Paul Semenza, a senior vice president with Display Research, which follows the industry. “In certain regions like Japan, consumers really want a certain high level of quality and are willing to pay for it. In the U.S., it's a much more price-sensitive market.”

Stiff competition for liquid crystal display TVs, the flat-panel kind produced at the Sony's Tijuana plant, has caused prices in North America to drop about 30 percent over the past year, said Stephen Baker, vice president of industry analysis at NPD Group in New York.

“As prices go down, you have to be competitive,” he said. “A lesson to be learned from the computer business is there is an awful lot of costs in manufacturing that might be better left to somebody with more leverage when every penny counts.”

On Monday, Sony said it will sell a 90 percent stake in its sprawling TV factory in Tijuana to Hon Hai Precision Industry Corp. Ltd., a leading outsource manufacturer of everything from iPods to Playstation 3 game consoles.

The Tijuana factory produces the bulk of Sony's LCD televisions sold in the Americas. Hon Hai will continue to make the televisions for Sony at the site. According to Sony, Hon Hai will retain all 3,300 employees.

As a huge electronics contract manufacturer, Hon Hai can drive a hard bargain with suppliers because it purchases in big volumes. In addition, it makes some of the components used in LCD televisions itself, according to analysts, which could further lower the cost of the LCDs it makes for Sony.

According to industry research firm iSuppli, Sony ranked third in the U.S. for unit shipments of LCD TVs in the second quarter with a 12 percent market share. It trailed Vizio, with 22 percent, and Samsung, at 21 percent.

Opened in 1985, Sony's Baja plant helped provide symbolic legitimacy to Tijuana's maquiladora industry. Initially, it made TV cabinets. But over the years it grew into an important cog in Sony's TV manufacturing operations.

The transaction with Hon Hai, which is also known as Foxconn, is expected to be completed within a few months. The financial terms were not disclosed, but Sony said it is not expected to have a material impact on the company this fiscal year.

Sony's move to sell the plant to Hon Hai/Foxconn came as a surprise to some in Tijuana's maquiladora industry.

In June, Baja California government officials said Sony was adding 1,500 positions at the factory as it moved production there from two TV plants it was closing — one in Mexicali and the other in Pittsburgh.

Moreover, Hon Hai/Foxconn has been looking for land in Tijuana, presumably to build its own facilities, said Tony Ramirez, a partner in San Diego-based Made In Mexico and a longtime board member of the Tijuana Maquiladora Association.

“We knew Foxconn has been snooping around for some time,” he said. “Everyone assumed they were going to be setting up their own operation.”

In outsourcing its TV manufacturing, Sony joins other TV brands that use contractors to make their products. Vizio, one of the most aggressive price competitors in the flat panel TV market, has no manufacturing facilities of its own, Semenza said.

Large out-source manufacturers tend to have more negotiating power with suppliers and expertise in manufacturing that helps lower costs.

“This is not unique to Sony,” said Semenza, the Display Research analyst. “Other major brands do it. They tend not to do it at the leading edge of their product portfolio. They do it when the pricing has become more of commodity-type pricing.”

Sony Outsources Border Plant
Frontera Norte Sur (See "Tijuana News")
Battered by multi-billion dollar losses, Sony Corp. has decided to outsource production at a large Tijuana factory. The Japan-based consumer electronics giant announced this week it will sell a 90 percent interest in a factory that manufactures LCD television screens to Hon Hai Precision Industry Co.of Taiwan. Production at the plant will be managed by Hon Hai’s Foxconn division.

The deal was given a political stamp of approval by Baja California Governor Jose Osuna Millan and other high state officials. In a Tijuana meeting earlier this week, Governor Osuna thanked Sony President Takahiro Kawamura for investing in the northern Mexican state. The National Action Party governor told Kawamura that Baja California is quite open to future dealings with Sony. After returning the appreciations, Kawamura said that Baja California has a proven track record in doing business.

No details of the Sony-Foxconn agreement were immediately disclosed, but initial reports suggested that the 3,300 workers at the Tijuana factory would still have jobs. Foxconn, however, is among many electronics manufacturers that routinely outsource jobs to temporary employment agencies which don’t pay the full range of benefits. The Taiwan-based industry leader makes computers and consumer electronics for companies including Sony, Apple, Cisco, HP, Nintendo, Motorola, and Nokia.

Enjoying nearly $40 billion in earnings in 2006, Foxconn emerged as the world’s largest electronics parts manufacturer, according to a report by the Guadalajara-based Center for Reflection and Labor Action (Cereal).

In addition to Tijuana, Foxconn is currently expanding production activities in Ciudad Juarez, Chihuahua. Prior to the onset of the world recession, Tijuana was the center of television production in Mexico, dominating 70 percent of the national market share, according to the Cereal report.

Typically, electronics components used in the manufacturing process in Tijuana are shipped in from Asia for final product assembly on the border.

Sources: Frontera, September 1, 2009. Los Angeles Times/Associated Press, September 1, 2009. Juarez-El Paso Now, August 2009. Cereal report, October 2007.

Comment by Citygroup
see also

"Hon Hai Precision Industry Co (鴻海精密) will buy the stake in a liquid-crystal-display TV unit based in Tijuana, Mexico, and the unit’s manufacturing assets...The sale signals that Sony — which is cutting 16,000 jobs and has shut eight factories to revive its profitability as it heads into its first consecutive annual losses since its listing in 1958 — may eventually stop making TVs, said Kota Ezawa, an analyst at Citigroup Inc in Tokyo."

Sony Sells 90% Of Tijuana LCD TV Plant, Forms Strategic Alliance with Taiwan’s Hon Hai Precision Industry

Sony Insider

Sony has announced that it has agreed to form a strategic alliance with Taiwan’s Hon Hai Precision Industry Co. Ltd. (also known as Foxconn) for the production of LCD TVs in the Americas. Based on this agreement, Sony will sell to Hon Hai Group 90% of its shares in Sony Baja California and certain manufacturing assets related to Sony Baja California’s Tijuana site in Mexico, which mainly manufactures LCD TVs for the Americas region. Following the sale, Hon Hai Group will hold 90% ownership of Sony Baja California and the Sony Group will retain a 10% share. The Tijuana site will remain a key manufacturing facility of Sony LCD TVs for the Americas region. Hon Hai Group will assume employment of employees at the Tijuana site.

Within its LCD TV business, Sony is concentrating internal resources towards areas that contribute to product differentiation, such as R&D, engineering and design, while also establishing a structure that enables the company to bring attractive products to market at the earliest possible opportunity. At the same time, by proactively leveraging external manufacturing resources Sony will also seek to reduce fixed costs, drive other cost reductions, improve profitability and achieve business expansion.

Completions of the transfers are subject to regulatory approvals in several countries. No material impact from the transfer on Sony’s consolidated financial results for the current fiscal year for the transfer is anticipated.


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