‘Bit Surprising’ Wisconsin Governor Wants to Redo Foxconn Deal, Says Analyst
It was “a bit surprising to hear” Wisconsin Gov. Tony Evers (D) say last week he wants to renegotiate Foxconn’s contract to build a downsized LCD fab in the state because of how cash incentives already are written into the agreement to protect taxpayers, emailed Bob O’Brien, president of Display Supply Chain Consultants (DSCC). O’Brien has followed the Foxconn project closely, and as a former Corning executive, was invited to the June groundbreaking where President Donald Trump and Foxconn Chairman Terry Gou presided (see 1806290027).
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“Given the structure of the deal” that Foxconn signed in November 2017 with the Wisconsin Economic Development Corp. (WEDC) (see 1711130014), “if Foxconn doesn't hit the minimum job numbers, they don't get a subsidy,” said O’Brien Friday. The state agreed to pay Foxconn up to $2.86 billion in cash credits to build a Gen 10.5 fab on a 32 million-square-foot campus if it met specific construction and labor milestones, including hiring up to 13,000 workers at a $54,000 average wage (see 1708040056). Foxconn downsized the plans to a Gen 6 fab in February, but hasn’t said how many it will hire or how big the campus will be.
O’Brien “can think of a few motivations” for Evers wanting to renegotiate the contract, he said. “He may want to try to reduce the amount of the subsidy, in terms of % of capital investment or % of wages, which are currently 15% and 17%, respectively, and he might offer a lower job threshold in return,” said O’Brien.
Evers also might be seeking “to get Foxconn to support some of the local infrastructure investments” in Mount Pleasant, near Racine, in southeastern Wisconsin, where the fab would be built, said O’Brien. “The local governments have borrowed heavily to build roads, water, sewer, etc. based on the original campus plan. If the project would collapse, the local governments would be on the hook, but the state would be on the hook for at least part of that as a backup.”
O’Brien doubts “it endangers the project that Evers says he wants to renegotiate,” he said. “I think it's likely that Foxconn would also want to renegotiate (to lower the job thresholds).” Evers and Foxconn representatives didn’t comment.
WEDC CEO Mark Hogan has had “frequent conversations with Foxconn officials since they confirmed over two months ago their decision to build a Gen 6 manufacturing facility” in Mount Pleasant, he said in a statement. “These ongoing discussions include consideration of the effect the company’s evolving plans may have on WEDC’s contract,” he said. “I fully expect these conversations to continue as the construction of Foxconn’s manufacturing campus ramps up over the next several months.”
The “deal that was struck” under former Gov. Scott Walker (R) “is no longer in play,” Evers told reporters last week. Walker lost his bid for a third term to Evers in the November election, and analysts said the unpopularity of the Foxconn deal was at least partly to blame for his defeat (see 1811070044). “We will be working with individuals at Foxconn and the WEDC to figure out how a new set of parameters should be negotiated,” said Evers. “The present contract deals with a situation that no longer exists. We need to take a look at that contract and see if it needs to be downsized as a result.”
Wisconsin has reached “a point now where we are relatively confident that the original footprint of that project is going to be much smaller, but it seems to be a footprint that everybody agrees is likely to happen,” said Evers. It’s an “unrealistic expectation” that Foxconn will hire 13,000 Wisconsinites as originally projected “when they’re downsizing the footprint of what they’re doing,” he said. “Whether it’s 1,300 or 13,000, that’s a lot of folks, but it’s unlikely in the near future it’s going to be 13,000.”
The Gen 10.5 fab that Foxconn contracted with WEDC to build would have been optimized for 65- and 75-inch LCD TV sizes, said DSCC’s O’Brien. “Originally, Gen 6 was built for efficient TV sizes,” including a “6 cut” of 37-inch panels or an "8 cut" of 32-inch screens from a single glass substrate, he said. “In the mid-2000s, those were big flat screen TVs. But larger Gen sizes can do those sizes now even more cost-effectively.” Gen 6 fabs “nowadays” are typically used for tablet, notebook and monitor displays in sizes between eight inches and 30 inches, he said.