Report: Foxconn may drop manufacturing as part of drastic rethinking of Racine County campus

Foxconn Technology Group is radically rethinking its Racine County project, scaling back or dropping completely the advanced liquid crystal display panels it planned to manufacture, Reuters reported Wednesday.

The Taiwan-based company, one of the world's largest electronics manufacturers, last year walked back its plans to build an LCD factory that would produce huge screens, opting instead for a less-costly plant that would make small panels for devices such as phones and tablets.

Now, Louis Woo, special assistant to Foxconn Chief Executive Terry Gou, said in a Reuters interview that even those plans are in jeopardy.

Woo's comments marked the latest in a string of modifications by Foxconn to its original plans for a massive electronics factory in Racine County. Over the last 10 months, the company not only has radically altered its planned employment mix and the nature of its operation, it failed to create enough jobs in 2018 to qualify for state tax credits.

RELATED: Foxconn falls short of first job-creation hurdle but reiterates ultimate employment pledge

FULL COVERAGE: Foxconn in Wisconsin

In the wake of the Reuters report, Foxconn on Wednesday pledged again — as it has repeatedly in the past — to create 13,000 jobs in Wisconsin.

"We remain committed to the Wisconn Valley Science and Technology Park project, the creation of 13,000 jobs, and to our long-term investment in Wisconsin," Foxconn said in a statement. "As we have previously noted, the global market environment that existed when the project was first announced has changed."

Wednesday evening the company issued a second statement, this time specifically saying it still intends to build a factory complex.

"Foxconn will be moving forward with plans to build an advanced manufacturing facility in Wisconsin," the second statement said.

RELATED: Foxconn's official statement says commitment to Wisconsin remains, but market has changed

Evers administration surprised

The latest change in direction was unexpected, an incoming member of Gov. Tony Evers' cabinet said Wednesday.

“The administration is in regular, weekly communication with senior leadership at Foxconn," Joel Brennan, secretary-designee of the Department of Administration, said in a statement. "However, we were surprised to learn about this development."

The "details about the continuing evolution of this project will require further review and evaluation by our team," Brennan said. "Our team has been in contact with Foxconn since learning this news and will continue to monitor the project to ensure the company delivers on its promises to the people of Wisconsin."

RELATED: Wisconsin GOP lawmakers blame Tony Evers for Foxconn's changing plans

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Woo said, according to the Reuters story, "that the company was still evaluating options for Wisconsin, but cited the steep cost of making advanced TV screens in the United States, where labor expenses are comparatively high."

“In terms of TV, we have no place in the U.S.,” Woo said. “We can’t compete.”

Rather than a focus on LCD manufacturing, Foxconn wants to create a “technology hub” in Wisconsin that would largely consist of research facilities along with packaging and assembly operations, Woo said.

Mark Hogan, CEO of the Wisconsin Economic Development Corp., said in a statement the agency's contract with Foxconn "provides the company the flexibility to make these business decisions, and at the same time, protects Wisconsin's taxpayers."

In return for Foxconn's promises in 2017 to spend up to $10 billion on the facility in Mount Pleasant and hire 13,000 workers in Wisconsin, state and local governments promised public subsidies totaling $4 billion.

Lawmakers also created a new "electronics and information technology manufacturing" tax incentive program for the company to receive the tax credits.

"As has been reported, Foxconn will not qualify for tax credits until, at the earliest, 2020, and then only if the company meets its annual job creation and capital investment requirements," Hogan said. "Our ongoing discussions with company officials reflect Foxconn's continued commitment to the State of Wisconsin."

Foxconn wants 'technology hub'

The dramatic change of plans comes less than a year after President Donald Trump and Gov. Scott Walker broke ground on the Foxconn campus in Racine County — saying the project would be transformational for Wisconsin.

Trump heralded the development at the groundbreaking for the facility last year as the "eighth wonder of the world."

"This is one of the largest plants in the world. And when you think in terms of 20 million feet — if you build in Manhattan a million-foot building, that’s a very big building. They don’t get much bigger. And here you’re talking about more," Trump told an audience in Mount Pleasant on June 28. "Think of it: more than 20 million feet. And that’s probably going to be a minimal number."

Walker championed the project, promising the campus would span 11 Lambeau Fields.

Lawmakers, meanwhile, passed an incentive package in 2017 that provides Foxconn up to $2.85 billion in cash from state taxpayers — the largest incentive package for a foreign company in U.S. history.

But public opinion on the project has remained mixed, and Walker in campaign ads for his unsuccessful bid for a third term assured voters Foxconn wouldn't receive credits without creating jobs. He reiterated his promise on Wednesday.

Evers and Attorney General Josh Kaul — elected in November — said on the campaign trail they would seek to hold Foxconn accountable for the terms in the state's contract with the company.

A spokeswoman for Evers did not respond when asked if he would seek or recommend that WEDC renegotiate the contract in light of the company's changing plans. A spokeswoman for Kaul said "the Department of Justice is committed to working to ensure Wisconsin taxpayers are protected."

WEDC board member Sen. Dan Feyen, R-Fond du Lac, said Wednesday the state's contract with Foxconn will protect taxpayers if the company's plans change.

"When the legislature and WEDC crafted the Foxconn incentive package it was carefully constructed to ensure that Wisconsin's taxpayers would be protected if Foxconn's plans did not come to fruition," Feyen said in a statement. "We saw the contract's effectiveness earlier this month when Foxconn failed to reach its minimum job count and received no credits accordingly."

Rep. Gordon Hintz, D-Oshkosh, also sits on the WEDC board and has been critical of the deal struck with Foxconn by mostly Republican lawmakers. He said the changes are "the consequence of rushed policy making and politically driven legislation."

"This news is devastating for the taxpayers of Wisconsin," Hintz said. "We were promised manufacturing jobs. We were promised state of the art LCD production. We were promised a game-changing economic opportunity for our state."

Neither Feyen nor Hintz said whether they would seek to renegotiate the contract.

Local officials reassured

Local officials in Racine County issued a statement saying that some elements of the Reuters story did not track with what executives have told them.

"Contrary to what was reported by Reuters, Foxconn reiterated to us, today, its commitment to building an advanced manufacturing operation in Wisconsin, in addition to its commitment to create 13,000 jobs and invest $10 billion in Racine County," said the statement, issued by Village of Mount Pleasant President David DeGroot, Racine County Executive Jonathan Delagrave and Jenny Trick, executive director of the Racine County Economic Development Corp.

"We understand that Foxconn must be nimble in responding to market changes to ensure the long-term success of their Wisconsin operations," the statement said. "We fully expect that Foxconn will meet its obligations to the State, County and Village.

"Both the local and state development agreements are legally binding and include strong protections for taxpayers. The state agreement, which was largely based on job creation, ensures that Foxconn only receives state tax credits if it meets or exceeds its targeted hiring amounts in any given year."

While Foxconn must hit job and investment goals to receive the state subsidies, Mount Pleasant and Racine County are spending money up front on infrastructure improvements and land acquisition.

They've been borrowing — $355 million so far — to cover those ongoing costs. Actual spending to date totals about $190 million, most of which has gone to buy land. Foxconn has contributed $60 million for the village to use in land acquisition.

The entire project is expected to require $912 million in local government spending, up from $764 million initially. Officials say the additional property taxes generated by the Foxconn development will cover the local costs, and the contract with the company obligates it to provide enough money to do just that even if its investment is less than expected.

Foxconn last year said it would scale back its original plans for the liquid crystal display panel factory at the heart of the project, opting to first build a smaller, less costly plant than the "Generation 10.5" facility specified in its contracts with state and local government.

After disclosing the change in plans last June, Foxconn initially said it still planned to build a Generation 10.5 factory, or "fab" — the largest and most expensive type of plant in the display industry — in a subsequent phase.

Two months later, however, the company, when asked, declined to offer assurances that it ultimately would build such a plant.

RELATED: Foxconn now declines to say it plans to build type of factory named in state, local contracts

Foxconn also has dramatically changed its hiring plans.

In July 2017, a report by a Foxconn consultant using company data projected that about 75 percent of the 13,000 Wisconsin jobs would be held by “hourly operators and techs.” About 18 percent of the employees would be engineers, the report said.

But by late March 2018, Woo said in an interview with the Milwaukee Journal Sentinel that plans had shifted and he expected that only about a third of employees “would be more like assembly line workers, but two-thirds would be the knowledge workers.”

Five months later, the workforce ratio shifted still further toward the high-skill end. Speaking to The Journal Times, of Racine, in late August, Woo said that “now it looks like about 10 percent assembly line workers, 90 percent knowledge workers.” That same day, Woo told the Milwaukee Business Journal that “at least 80 percent would be engineers or R&D scientists.”

On Wednesday, Milwaukee Mayor Tom Barrett lamented that shift.

"I'm very concerned about it," he said. "Obviously our major labor pool that needs jobs are the unskilled and under-employed right now. As the project — whatever the project changes to — transforms into something that's more research-oriented, that doesn't bode well for those that are under-served in Milwaukee."

A spokesman for Walker did not answer questions about whether Foxconn officials ever expressed concerns to Walker about labor costs as the company and state officials negotiated the tax incentives.

Pennsylvania plans

Foxconn has failed to follow through on some of its previously announced plans elsewhere.

In November 2013, Pennsylvania Gov. Tom Corbett announced that Foxconn planned to invest $30 million in a “high-end technology manufacturing facility” expected to create 500 jobs over the following two years.

The company had a small research operation in Harrisburg, Pennsylvania, and the new factory was to be opened in that area.

“It just never happened,” David Black, president and CEO of the Harrisburg Regional Chamber, the area’s economic development organization, said in a 2017 interview. “I wish I could tell you what happened with it. ... Long story short, nothing ever came of it.”

Foxconn's reference Wednesday to a changing global environment didn't mention Apple, but the relationship with the American tech company is critical. More than half of Foxconn's revenue, according to the firm's annual reports, comes from a single unnamed customer — widely believed to be Apple.

And Apple has been struggling a bit of late. This week, the California-based company reported that sales of its top product, the iPhone, fell 15 percent in the quarter ending Dec. 29. Overall revenue declined 5 percent.

'Am I worried? ... No'

Timothy Sheehy, president of the Metropolitan Milwaukee Association of Commerce, expressed confidence Wednesday that Foxconn will continue to invest in Wisconsin even as the nature of the investment changes.

"I've talked to Louis (Woo) as recently as this morning, and his comments are that they're committed to the Wisconsin project," Sheehy said. "So am I worried that they're going to pull out? No. Absolutely not."

Sheehy said he spent 20 to 30 minutes on the phone with Woo, who is in Asia, following the Reuters report.

"We're dealing with a company and an industry that is disruptive, dynamic and global," Sheehy said. "Maybe it was a bit naive to think there were not going to be changes in how Foxconn invested in Wisconsin."

Sheehy said Woo told him the company's plans for the next 18 months include construction of an assembly factory, a packaging plant and a high-precision molding facility, along with prototyping and research centers, a data center and a "town center" for people who will work at the Mount Pleasant site.

Sheehy believes Foxconn has been forthright in its dealings with Wisconsin, but not especially skillful in how it communicates.

"The change in the business plan is moving faster than they're communicating," he said.

Sheehy said Woo told him the Reuters article did not provide full context for his remarks.

He also pointed to Foxconn investments not required by contract, including the purchase of buildings for what the company says will be innovation centers in Green Bay, Eau Claire and Racine; the purchase of a downtown Milwaukee office building; a commitment of $100 million for research at the University of Wisconsin-Madison; and participation with three other companies in a venture capital fund.

Mary Spicuzza of the Journal Sentinel staff contributed to this report.