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Thursday, September 29, 2011, 03:21 pm PT (06:21 pm ET)

Foxconn's $12 billion iPad deal in Brazil threatened by local shortcomings

The $12 billion deal to produce Apple’s iPad in a new Brazil-based Foxconn factory is now in doubt as the parties involved are reportedly unable to reach consensus on several matters.

Negotiations between Foxconn and the Brazilian government have temporarily stalled, according to Reuters. Increased taxation, an unprepared infrastructure and the lack of qualified workers are cited as major reasons that threaten the $12 billion investment and are seen as obstacles in economic growth in the region.

A local Foxconn factory was supposed to begin iPad production in July, but the start date has been pushed back twice, first to September and then to November. At this point it is unknown whether the Taiwan-based company will manufacture any Apple tablets in Brazil, or if production will simply continue only in its Asian factories.

One unidentified Brazilian government official reportedly said that negotiations with Foxconn have been very difficult, saying that the prospect of building iPads in Brazil is "in doubt." He said the Taiwanese company is making "crazy demands" for tax breaks, priority treatment in Brazilian customs, and other special treatment.

Foxconn reportedly wants to build a new industrial complex outside Sao Paulo, an "intelligent city" that would have its own energy facility, roads and infrastructure.

That could put further strain on the Brazilian government, which is already engaged in building other planned projects related to the World Cup and the Summer Olympics the country will host in 2014 and 2016, respectively. Those are projected to cost the nation $1 trillion over the next ten years.

Funding for the initial $12 billion Foxconn project, which is supposed to come from BNDES, the state development bank, is said to be in danger of being withdrawn. In such a case the whole Brazilian iPad endeavor is expected to "collapse."

Another obstacle for the deal, according to the report, is the lack of Brazilian companies to partner with in order to share costs. "It’s a requirement to have Brazilian partners, (but) in the technology area the partners we have do not have the financial muscle for investments near that value," Science and Technology Minister Aloizio Mercadante said.

iPad 2


In mid-September, Mercadante said that the first iPads produced by Foxconn in Brazil would reach markets by December, but that now appears to be in jeopardy, as the final investment may not amount to the original $12 billion proposal. To cut costs, Foxconn or a Brazilian company could assemble imported iPad 2 parts instead of producing them locally as initially expected.

One government official reportedly said that there’s also a possibility of "something smaller" to be built, instead of the iPad.

The iPad project is a critical step for the Brazilian government which would not only generate economic growth, but also help make the iOS tablet more affordable in the country. A 16GB iPad 2 Wi-Fi model is priced at just $499 in the U.S., while the same device would cost close to $900 in Brazil after import taxes and other fees.

Brazilian President Dilma Rousseff, who first announced the Foxconn deal in April, sees tablets as a "low-cost way to increase Internet access to the poor." Internet usage is reported to be high in Brazil for developing-world standards.

Earlier this week an analyst suggested that Apple has cut fourth-quarter iPad 2 orders by as much as 25 percent. Others replied that the start of iPad production in Brazil could explain the company’s decision to reduce tablet orders from Asian-based suppliers.