Foxconn International Holdings (2038), the mobile phone arm of Taiwan's Hon Hai, plans to invest about US$1.2 billion (HK$9.36 billion) to build a new plant in China to beef up its presence in the country.
The factory will be built in China's northern city of Langfang in Hebei, between Beijing and Tianjin. The location is convenient because it lies close to the firm's customers.
As global demand grows, Foxconn, which produces mobile phones for Nokia and Motorola among others, has also been looking at other sites to build more facilities on the mainland.
"The current capacity we have in Shenzhen and Beijing won't be able to support our foreseeable future growth so we need a better piece of land for future expansion," Vincent Tong, a Foxconn spokesman said.
Langfang has been dubbed the Silicon Valley of China as numerous technology projects have sprouted up there over the past several years.
"We see this as a five-year plan and we will acquire a big piece of land there," Tong said. "Our CFO has already signed on to this investment."
JPMorgan rates the firm at "neutral" and the company currently takes up around 48.5 percent of the global handset contract manufacturing sector.
"Tianjin is now the economic center in northern China and it's also where Motorola is so it's a natural decision. It's quite a big investment," said a JPMorgan analyst in Hong Kong.
"We still expect Foxconn's sales to grow around 50 percent in 2007 versus 2006 and if they want to maintain growth, they must continue to invest."
Analysts say that Foxconn is a vital growth factor for the Hon Hai Group as the Taiwan company seeks to increase its profit from demand for higher- margin consumer gadgets and cellphones.
Foxconn shares fell 3.2 percent on Monday, lagging a 0.8 percent drop in the benchmark Hang Seng Index.Hon Hai Precision Industry, Taiwan's top electronics parts maker, has been securing orders from top multinational vendors under its Foxconn subsidiary to strengthen its stance in the competitive mobile phone industry.