American OEM giant Flex International has shut down production at one of its Zhuhai plants serving Huawei Electronics and begun laying off workers, according to local media. It has also recently closed its factory in Hunan’s Changsha as Huawei cut down its smartphone production orders.
Founded in California 1969, Flex is the world’s second largest OEM enterprise after Taiwan’s Foxconn. It entered the Zhuhai market in 1996 and its industrial park there is its largest in the world. At its peak, the park employed up to 18,000 workers. It has shut its South plant, keeping its North plant going.
Flex is said to have informed the workers at the south plant at the end of July that “after a careful evaluation of the market situation and the client’s needs, Flex has decided to offer other job opportunities within the group to those affected.” The workers were given the option to either work at the north plant or resign with a compensation package.
Some workers were apparently not happy with the compensation terms and have hung up banners in front of the factory, demanding more.
Flex so far has said it has no plans to sell the factory, but with production at halt, daily losses could have reached as much as US$1 million.
If Changsha is a guide, there may be domestic takers for the plant. One of its plants there has already been taken over by electric vehicle manufacturer BYD, which is also said to be looking at the other.
Zhuhai might not be such an easy ride for the company, however. According to unnamed market sources quoted by local media, Huawei is still demanding to have some production materials returned and legal discussions are deadlocked.
Flex sources told Caixin that the company’s long-term partnership with Huawei had been “unexpectedly affected” by the US-China trade war and the two parties have been engaged in “active discussions”.
China accounts for 25% of Flex’s total global revenues – US$6.649 billion out of US$26.211 billion in 2018/2019. Huawei alone had accounted for 5% before the trade war began, according to estimates from investment banks.
According to the company’s most recent earnings report, for the first quarter of 2019, Flex’s total operating income reached US$6.176 billion, down 3.48% YoY. It acknowledged that “geopolitical uncertainty” had caused a drop-off in demand by a Chinese client, which was understood to be referring to Huawei.