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Terry Gou must name his successor: iPhone maker Foxconn needs another CEO

At present, Gou should be implementing strategies to cope with the downturn and communicating them across his sprawling empire

Tim Culpan | Bloomberg 

Terry Gou
In recent months Gou has said he’s barely running the company and will hand over to a successor soon

Before Terry Gou received a divine message to run for Taiwan’s presidency, the founder said that he had stayed awake at night wondering what he could do for today’s youth.

That’s an admirable sentiment, but doesn’t much help his own shareholders when they need him most. The company’s major client, accounting for half of sales, is facing the biggest challenge in more than a decade. The tech sector overall is wrestling with a slowdown. And a trade war between China and the US puts directly in the crossfire.

Flagship reported earnings late Tuesday. The maker of Inc. iPhones posted operating income that didn’t even match the lowest of analyst estimates, dropping 35% from a year earlier. That’s the biggest miss for a March quarter since Hon Hai started reporting consolidated numbers 11 years ago.

The results were bad across the board. Gross margin was the lowest in seven years, and operating margin fell near historic lows. Judging by the stock’s drop Wednesday morning, investors didn’t see this coming any more than analysts.

Gou loves to talk. He is happy to chat about his trip to the White House and meeting President Donald Trump. He loves to ponder what Taiwan needs from a president. He is keen to share his twin passions of charity and cancer research. But what he doesn’t like to discuss are the inner workings of his own $34 billion business.

In situations like this, a CEO should be on a conference call explaining the situation to investors. Executives would do the rounds of financial media to calm shareholders. Yet Gou isn’t doing that. Hon Hai’s investor relations team offers the scantest of information in a single earnings table sent from a Gmail account.

Which leaves investors in the dark about what went wrong last quarter. Last month I noted that took one for team in the December quarter by carrying excess inventory despite slowing sales. Data released Tuesday for the March period suggest this is exactly what happened, pointing to an inventory writedown as a reason for the 202 basis point drop in operating margin from the prior quarter.

ALSO READ: Foxconn's Liu Young tipped to replace Terry Gou as next chairman: Report

In recent months Gou has said he’s barely running the company and will hand over to a successor soon. That nobody knows who the new leader will be says a lot about Gou and his leadership. As soon as a name pops up in local media reports, that person appears to get crossed off the list.

Investors deserve better. Gou should be implementing strategies to cope with the downturn and communicating them across his sprawling empire. Instead, he’s off chasing a political career, which is starting to look like a vanity project.

If Gou has truly stepped back, as his public statements indicate, he has yet to fulfill a fundamental obligation to shareholders: planning and communicating an orderly transfer of responsibility. By contrast, Taiwan Semiconductor Manufacturing Co. founder Morris Chang groomed two possible successors for years in the public eye, before announcing the next generation of leadership eight months ahead of his retirement.


ALSO READ: Won't continue as chairman of new board, says Foxconn founder Terry Gou

In one of his most recent campaign statements, Gou wrote that “politics must serve the economy.” Foxconn shareholders must be left wondering who will serve them.

First Published: Wed, May 15 2019. 14:26 IST
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