Flex faces difficult time for feuding with Huawei

By Shen Weiduo Source:Global Times Published: 2019/7/28 20:35:03

Possible loss of China market will deal the company a big blow

File photo: VCG

US original equipment manufacturer (OEM) Flex Ltd, once Huawei's major smartphone assembler, had to stop production in its Changsha factory in Central China's Hunan Province, after the Chinese telecom giant removed it from its supply chain, domestic news site thepaper.cn reported.

Flex's Zhuhai plant privately detained materials and equipment belonging to Huawei worth more than 700 million yuan ($102 million) for more than one month, a source told the Global Times previously.

Experts said following the alleged closure of its Changsha factory, Flex might face a difficult time in China as it could not fill the order gap left by Huawei. Other potential customers including Chinese phonemakers, Xiaomi, OPPO and Vivo, might also have concerns about giving it orders because of the Huawei issue.

Flex's Changsha Smart Manufacturing Industrial Park, which was mainly established as a production base for Huawei, has three phases. The first phase started operation on July 12, 2018, with daily production of 60,000 phones on average. The second stage started construction in October last year, and is now in the final stages. 

The second stage of the project has been taken over by China's major electric vehicle maker BYD, which will also produce smartphones for Huawei, according to media reports. The third stage has not started yet.

When searching on tianyancha.com, a Beijing-based query system for business information, the Global Times found that the registration location of BYD Changsha Co, which was established on June 11, is the same as the second stage of Flex's project.

When contacted by the Global Times on Sunday, BYD did not issue any denial and it declined to make further comment. 

Flex has not made a final call on whether it will totally retreat from Changsha, thepaper.cn reported.

Flex's Changsha project is targeted to achieve annual production worth 10 billion yuan and generate annual tax revenue of 150 million yuan.

Xiang Ligang, director-general of the Beijing-based Information Consumption Alliance, a telecom industry association, told the Global Times on Sunday that the mobile phone OEM industry does not have a high technology threshold. So if Flex is kicked out, others such as BYD and Foxconn will soon follow up.

A big heavyweight customer like Huawei is hard to find even in the global context, Fu Liang, a Beijing-based independent telecom expert, told the Global Times on Sunday, stressing that Flex is set to bear large losses.

According to a Reuters report, Huawei contributed nearly 2.5 billion yuan, or 5 percent of Flex's total revenue in the third quarter of 2018.

Flex privately detained materials and equipment belonging to Huawei worth more than 700 million yuan for more than one month after the Trump administration put the Chinese company on a blacklist in May, a source close to the matter told the Global Times previously.

After Huawei was placed on the US Entity List on May 16, which bars US companies from selling products and services to it without permission, Flex, a partner of Huawei for many years, halted its cooperation with the Chinese company in the global markets.

Responding to a question about a Global Times report on Flex's seizure of Huawei's equipment, an official of China's Ministry of Commerce said on Thursday that "China's unreliable entity list is in the process of being drawn up," without directly addressing the question.

"More Chinese companies would be reluctant to cooperate with Flex given the case of Huawei, as they would face both pressure from the public and concerns that Flex might 'detain' some of their materials in the future," Xiang said.

During the process of drawing up an unreliable entity list, US companies such as FedEx and Flex have already been shown to be "bad examples" of foreign companies in the China market, Xiang said.

When operating in China, a company must obey China's regulations and laws, instead of cooperating with US long-arm jurisdiction, experts said.

Fu said that if it's put on the unreliable list, a total retreat from the China market would be a big loss for Flex as a huge market as mature as China is hard to find. 

Established in 1969, Flex is the second-biggest OEM globally after Foxconn. Flex also has factories in Zhuhai and Shenzhen in South China's Guangdong Province, and Suzhou in East China's Jiangsu Province.

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