Apple iPhone-Maker Foxconn Ponders Big Brazil Move

IPhone maker Foxconn is considering investing $12 billion in Brazil, a move that could help Apple and other tech companies expand in the world's eighth largest economy.

A customer at an Apple store at Southpark Mall in Charlotte, N.C., examines the new Apple iPhone during the first day of sales for the device, Friday, June 29, 2007. (AP Photo/Jason E. Miczek).
Jason E. Miczek
A customer at an Apple store at Southpark Mall in Charlotte, N.C., examines the new Apple iPhone during the first day of sales for the device, Friday, June 29, 2007. (AP Photo/Jason E. Miczek).

Brazilian president Dilma Rousseff said her government is studying Foxconn's investment plan, the latest move by the manufacturer to expand its manufacturing operations beyond the booming southern Chinese city of Shenzhen.

Rising labor costs have forced many companies to set up operations in cheaper parts of China, but a Foxconn move into Brazil would help tech companies sidestep hefty import tariffs on products they sell in the South American country. Its other clients include Hewlett Packard and Dell .

Tech companies are keen to sell to Brazilian consumers hungry for high-end electronics, but gadgets are often priced out of the market because of high production costs and import tariffs. Apple's cheapest iPad, for example, retails for about $860 in Brazil, versus $400 in the United States.

"It makes a lot of sense," said Jefferies & Co analyst Peter Misek, citing "punitive" import taxes. "If you're trying to serve Latin America, Brazil is certainly the biggest country" you have to hit."

"I don't think Foxconn is building this without a big marquee customer."

A deal would hand Brazil's president a major victory on her Asian trip.

"You've got an ample range of investments that go from $300 to $400 million to $12 billion over 5 to 6 years in the case of Foxconn," Rousseff told reporters, speaking of discussions her government was having with various technology companies.

"They're proposing a partnership. They came to us and said we want to invest in Brazil," she said during a visit to Beijing, where she is meeting Chinese President Hu Jintao.

Foxconn, a Taiwanese company that also controls Hon Hai, manufactures most of Apple's products — including the latest hit gadget, the iPad — at its Shenzhen factories.

China's largest private employer made headlines last year after a string of worker suicides blamed on harsh living conditions and unrelenting pressures.

"We've been talking to them for three months," said Aloizio Mercadante, Brazil's science and technology minister.

Tablets for the Masses

Rousseff herself has identified tablet computers as a relatively cheap way to promote Internet access for Brazil's emerging lower middle-class, which accounts for about half the 190 million population.

Black and white versions of the new iPad 2.
Getty Images
Black and white versions of the new iPad 2.

Brazil has one of the steepest import-tariff regimes in South America, and is one of the world's most expensive places to do business because of a heavy tax load, an overvalued currency and restrictive labor laws.

According to media reports, Apple CEO Steve Jobs last year slammed the country's tariff barriers.

"We can't even export our products because of Brazil's crazy politics of high taxation. That makes investing in the country very unattractive. Many high tech companies feel this way," Jobs was cited as saying in an email response to an official's invitation to open an Apple store in Rio de Janeiro.

But as one of the fastest-growing BRIC countries, it has long been viewed as an attractive consumer market, one which some — like Apple — have had difficulty breaking into because of steep tariff barriers. Foxconn's move would help clients expand into local markets while potentially also offering a base for export to neighboring regions.

To get around hefty tax burdens, electronics vendors have increasingly set up local manufacturing, partly also to hitch a ride on attractive tax benefits. Almost all locally assembled electronic goods are produced near the Amazon city of Manaus, where duty-free status helps make costs more viable.

The Brazilian government and Foxconn are now negotiating a range of details, including the location of facilities, financing, taxes, broadband infrastructure and logistics.

Mercadante also told reporters Foxconn is planning to begin assembling Apple's iPad tablet PC at its plants in the South American country by the end of November.

"The negotiations are far from complete but I'm confident," said Mercadante. Calls to Foxconn's spokesman went unanswered. Apple declined to comment.

Foxconn is a key supplier to top technology brands, which typically do their own research and design work in-house and outsource manufacturing to Foxconn and rivals such as Flextronics .

Chairman Terry Gou has been ramping up the company's capabilities in the LCD sector in recent years, setting up its own flat panel display unit and buying Sony's LCD TV manufacturing plant in Slovakia. The company's LCD unit is Chimei Innolux.

Besides Foxconn, other Taiwanese companies that operate factories in Brazil include Compal, the world's No. 2 contract laptop PC maker.

Foxconn's last major investment outside of Shenzhen was in October, when it announced a $2 billion plant in Chengdu, in China's Sichuan province. The company has roughly 1 million workers in China, and is the country's largest private sector employer.

But over the past year, its Shenzhen base has come under fire after a string of worker suicides. Apple's secretive culture — and its stringent demands — were blamed by media for one incident in which a worker reportedly killed himself after losing an iPhone prototype. CEO Steve Jobs has called the reports of worker deaths "troubling", while Foxconn has since raised wages and tried to improve living conditions.