Apple supplier Foxconn says it's 'way too late' to chase dominance in cutting-edge chips

Apple iPhone supplier Foxconn, officially known as Hon Hai, said its semiconductor strategy is to focus on producing "specialty chips" — not competing in cutting-edge chips.

"We do not chase [after] the most advanced technology. Hon Hai will not compete with leading edge players like 4-nanometer or 3-nanometer. We focus more on specialty technology," Chiang Shang-Yi, chief strategy officer for semiconductor at Hon Hai Technology Group, told CNBC's Emily Tan on Tuesday.

Specialty chips are known as semiconductors found in sectors such as automotive and internet of things. Chips for automotive uses are typically made using mature technology – 28-nanometer or larger chips.

"Nanometer" in chips refers to the size of individual transistors on a chip. The smaller the size of the transistor, the more powerful and efficient it is, but it also becomes more challenging to develop.

The likes of Taiwan's TSMC and South Korea's Samsung are sprinting toward producing the highly advanced 2-nanometer and 3-nanometer chips. Samsung has already said it will mass-produce 2-nanometer chips by 2025, after the company started producing 3-nanometer chips in June last year.

"If we tried to chase 3-nanometer, 2-nanometer, we are way too late. The way we are working on [is to] just try to manage the supply chain. And we call it specialty technology – that is not late at all," said Chiang.

Hon Hai Technology Group is the world's largest contract electronics manufacturer that assembles consumer products like Apple's iPhones. But in the last couple of years, the Taiwanese firm has made its foray into semiconductors and electric vehicles.

When it comes to EVs, Chiang said the focus lies in power devices and silicon carbide chips — increasingly a material of choice among EV-makers, thanks to its higher efficiency at higher voltages common in EVs.

Foxconn first announced EV prototypes in 2021 made by Foxtron, a venture between Foxconn and Taiwanese car maker Yulon Motor.

Foxconn currently only produces a small number of EVs, but has set an initial target of capturing a 5% market share globally by 2025, according to Reuters.

"When we [talk] about EV business, we have a component business. We have a platform business. We have a CDM business: contract, design and manufacturing services," said Jun Seki, Hon Hai's chief strategy officer for EVs, told CNBC in a separate interview.

"Our strategy is we attack all. Component module platform makes our cost very competitive. This is an area that makes traditional auto OEMs profitability very poor, he said referring to original equipment manufacturer, which are products sold to other companies as components.

"Sometimes we may have to build their cars by their drawings. If our customers can give a chance to us, we can build our ideas into their cars, then we can make customers more competitive," said Jun.

However, the global EV market is only getting more competitive.

China, Europe and the U.S. are major players when it comes to electric cars. From third-quarter 2021 to second-quarter this year, the top three players – Tesla, BYD and Volkswagen – held 42% of the global EV market, according to Counterpoint Research.

Foxconn's foray into semiconductor has had a tough start, pointing to the difficulty for new players to enter a market dominated by firms with extensive experience and a highly intricate supply chain.

Earlier this year, Foxconn pulled out of a joint venture with Indian metals-to-oil conglomerate Vedanta to set up a semiconductor and display production plant in India as part of a $19.5 billion deal.

"You call it a failure, but I don't think it's finalized yet. I think we learnt through the way how we interpret, how we work with the government. So far, the government is still not making a decision yet. So I will not call it a failure at this moment. We are all still trying to work with the government, to find ways so the government will support our proposal," Young Liu, Hon Hai's CEO and chairman, told CNBC.

"We've been working with countries like India, Indonesia and Thailand. They're all going quite well," the CEO said. Foxconn is exploring cooperation with Indonesia and Thailand EV-related companies.

He added that Hon Hai "very much focus on the entire supply chain," he added. "There's a good reason for that."

"If you do a little bit in everything, you know what's going on in that area. Like we all know, two years ago, there's a big shortage in chips and many cars cannot be shipped because they lack chips. And this case, Hon Hai will have a better idea because we'll know what's going on. And we give us more lead time to try to manage them," said Chiang.