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May 29, 2017

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Investors dump shares of Foxconn over firm's intentions for spin-off

TAIPEI, Taiwan --Institutional investors have been observed selling their holdings of Foxconn following the July 8 announcement of the company's decision to spin-off its network equipment manufacturing division.

Over 106 million shares have been liquidated by foreign institutional investors during the past 7 consecutive trading sessions, according to reports, rendering institutional holdings of the company's shares to below 40 percent. Shares of Foxconn yesterday closed at NT$70.7, down NT$1.3, which places the firm on the brink of losing the NT$70 watermark.

Reports indicate that institutional investors have expressed concern over whether the spin-off will affect the operations of the parent company Foxconn, and may have reacted to uncertainties by dumping holdings of the company's shares.

Foxconn's network equipment manufacturing division contributes about NT$80 billion worth of revenues annually, representing 2 percent of the company's total current year revenues of NT$3.9 trillion.

Industry commentators compared the move with Acer's decision to spin-off Winstron (緯創), its original design manufacturer (ODM) arm in 2000. However, the situation is different, as with yearly revenues of NT$100 billion, Acer's spin-off Winstron represented a much more significant portion of segregated revenues.

Institutional investors indicated that it is most interested in how the spin-off process will be conducted, and how the interests of shareholders will be preserved. Foxconn Chairman Terry Gou stated that the company is committed in preserving the interests of every shareholder no matter the scale of their holdings.

Certain institutional investors questioned whether the company's overall profitability will be impacted by spinning-off its lucrative network equipment manufacturing arm. Institutional investors also questioned the degree of control afforded to the company after the spin-off process is complete. Industry commentators mentioned Pegatron (和碩), which owns a 70-percent stake in its lucrative spin-off Casetek (鎧勝), citing it as a potentially optimal outcome for Foxconn.

Meanwhile, certain institutional investors indicated that with its 13 operating divisions, it is difficult to gauge the company's performance, adding that the move will help render greater transparency to investors.

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