Foxconn is reportedly branching out into the robot business with Google and the move could come in handy for profit margins.
According to the Wall Street Journal, Foxconn, a unit of Hon Hai Precision Industry, is partnering with Google to potentially build robots for the search giant. Google put former Android leader Andy Rubin in charge of a robotics business.
Foxconn has been a player in robotics for its own plants. In 2012, there was a lot of news reports and chatter about Foxconn replacing human labor with robots to build Apple products. Foxconn is mostly known as the manufacturing partner for the iPhone and iPad, but has other businesses.
Google has been on a tear with robotics acquisitions, but it's unclear what the company has in mind beyond self-driving cars. The Journal noted that Google is pitching a robot operating system for manufacturers.
In many respects, Foxconn has to get on the robot bandwagon as it is facing a bevy of challenges. To wit:
- Labor costs are rising in China and Foxconn survives on making products with razor-thin margins.
- Automation will be critical to keeping those costs down.
- The company has to diversify away from Apple and contract manufacturing growth has stalled. Foxconn's January sales were flat year over year and revenue fell every month in 2013.
- And as robots take over in manufacturing it may not make sense to build in China, which has cheap labor as its primary competitive advantage.
In other words, Foxconn will have to move upstream at some point and will need a heavy dose of automation to improve profit margins.