“I can’t put my finger on why, but this acquisition seems weird to me,” writes John Gruber, describing Foxconn’s decision to buy Belkin for $866 million. It is not that weird, especially when you take into account the competitive landscape.
TL: DR version: Foxconn needs to boost margins. Belkin has a great brand but faces an increasingly competitive landscape. It is weirdly about Taiwan vs. China.
Belkin is a Playa Vista, California-based consumer electronics brand, which makes everything from IoT devices (such as connected power strips and bulbs) to WiFi routers and accessory cables. Amongst all the old school accessory makers, it seems to have the best taste and better understanding of software-hardware confluence. It has a lot of well-known brands including well-known consumer electronics brands such as Belkin, Linksys, and Wemo.
It was acquired by Foxconn Interconnect Technology (FIT), a division of Foxconn which is a well known to be the assembler of iPhones and other Apple devices. Foxconn is formally known as Hon Hai Precision Industry Co. and is based in Taiwan.
If you have been watching the retail landscape, you are starting to see that there is a proliferation of companies selling accessories. One look at Amazon.com and you see a market chock full of companies selling cables, wifi gear and what not. They have all capitalized on the China boom and ease of online sales, and fast shipping to build sizable businesses.
In a Pi.co conversation two years ago, Liam Casey, founder of PCH International, and Silicon Valley’s Mr. China explained:
I can take a product from the production line in China to a consumer in San Francisco in 4 days, 5 hours, 14 minutes. We’re 3 hours from all the factories we work with, and we’re 3 days from 90 percent of the consumers around the planet that buy our products.
Anker, for example, has come from nowhere and has become a dominant brand for accessories. Others such as Native Union and Mophie, too are well-known players. Amazon Basics and Bestbuy’s in-house brands, RocketFish, are other examples of companies that are aggressively trying to capture the consumer electronics business.
Against this backdrop, Belkin has done a good job of surviving in the market. They have managed not to become yet another “commodity brand.” But the question is for how long could they stay independent. In Foxconn, they have found an excellent parent to keep them growing. They can use Foxconn’s more significant infrastructure to their advantage.
As the press release notes:
Belkin International and its family of brands will continue to operate as a subsidiary of FIT under the leadership of CEO and founder Mr. (Chet) Pipkin and his executive team. Mr. Pipkin is expected to join FIT’s management team.
So what does Foxconn get? Well, if you are working as a contract manufacturing company for Apple, you aren’t making that huge a margin. Apple’s financial team makes sure that its suppliers and vendors are squeezed hard. It needs to figure out ways to boost its revenues and more importantly, margins. Belkin brings that to the stable, just like Sharp, which they bought in 2016.Foxconn is also the financial backer for Nokia phones business, HMD Global.
It more than just money. It is also a company that is facing a lot of competition from the home-grown Chinese companies such as (former cable maker) Luxsher, which were upstarts ten years ago, but now have started to eat into Foxconn’s dominance. Belkin is yet another step towards making sure it has a future.
All right, how is that for an answer John!