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Could your next iPhone or Wii be made in Vietnam?

Taiwan's Foxconn announces plans to diversify its manufacturing base by expanding into Vietnam.
In a move that could be seen as reducing exposure to China, Taipei-based Foxconn Electronics (Hon Hai Precision Industry) announced last week it was expanding operations in Vietnam.

On Friday, the world's largest contract maker of electronics, including Apple's iPhones and iPods and Nintendo's Wii, announced that in the first half of this year its after-tax profits were up 32% year-on-year to NT$31.26 billion ($944.4 million). Net income rose 18% to NT$15.6 billion. Analysts had, however, expected an even better performance. The mean estimate of six analysts compiled by Bloomberg had profits hitting NT$16.7 billion.

But its earnings translate into a net EPS (earnings per share) of NT$4.97 for the first half, which is the company's highest EPS ever for an interim period. And itÆs continuing its effort to diversify its plant operations as a way to ensure it stays in the lowest-cost, most efficient manufacturing areas. China may be it now, but will Vietnam be the future?

On August 29, Foxconn chief executive Terry Gou and VietnamÆs Ministry of Planning and Investment signed a framework agreement in Hanoi on the groupÆs commitment to invest $5 billion in various high-tech and supporting industries projects û which range from building its own plants to developing real estate and industrial plants.

Since starting Hon Hai in 1974, Gou has built the company by offering lower prices and spending on product development. It mainly manufactures in mainland China, employing roughly 450,000 people there, with its biggest factory in Shenzhen where it has about 270,000 employees. While it also has subsidiary-owned plants in the Czech Republic, Hungary, Mexico, Brazil and India, expanding its operations in Vietnam enables it to service Asean countries and also hedge against rising salaries in Shenzhen, as well as fears of an escalating trade war between the US and China.

"Vietnam is the next outsource manufacturing centre of Asia, this is because of a China-plus-one strategy that manufacturers are adopting and a response to anti-dumping suits that will be hitting the Chinese point of origin manufacturers hard over the next few years," says Tung Kim Nguyen, a partner at Indochina Capital.

According to Vietnamese state media reports, Foxconn has invested around $160 million in two plants in Que Vo Industrial Zone in the northern part of the country. The factories, which it opened on Friday, sit on a 1.1-hectare plot and will mainly produce camera modules, main boards and connectors. The state press adds that Foxconn has recruited about 500 local university graduates for its Vietnam facilities and could hire up to 300,000 thanks to its plans to invest up to $5 billion in the country.

At the signing event, the state media quoted Gou, who could not be reached for comment for this story, as saying Foxconn seeks to become Vietnam's largest foreign investor in terms of export turnover and would contribute to the nation's development by bringing the latest information and telecommunications technology to its local operations.

Foxconn isnÆt alone in seeing Vietnam as a future high-tech manufacturing frontier. Last year, Intel announced that it would build a $1 billion fab near Ho Chi Minh City, prompting other manufacturers û from Toshiba to Matsushita - to pledge future investments.
¬ Haymarket Media Limited. All rights reserved.

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