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A major shakeup, in the midst of Dahua suing the US government and petitioning a prohibited purposes plan, Dahua is now selling off its USA-branded business to what it describes as a "reputable Taiwan-based manufacturer," in contrast to it being a sanctioned PRC China company.
In emails sent to both dealers and distributors titled "Dahua Technology North America Ownership Change" that omit any mention of ongoing FCC and NDAA action, as well as sanctions, Dahua declares that:
Dahua Technology has completed the required procedures for a 100 percent ownership change with a reputable Taiwan-based manufacturer [emphasis added]
Emphasizing Taiwan is noteworthy since PRC China standard practice, including by Dahua, is not to acknowledge Taiwan's existence as a separate country. Moreover, emphasizing their being "reputable" contrasts with Dahua's own reputational and legal issues.
The above paragraph concludes with:
specifically pertaining to our North America branded business
This qualification indicates that Dahua intends to handle its OEM business in North America separately.
The emails are signed:
This is the first public reference to "Lin Kun-Huang" we have found [UPDATE; we have added more in the Research section about Lin from corporate filings]. Historically, Tim Wang, aka Lin Wang has been typically listed as VP or GM for North America. Wayne Hurd remains the VP of Sales and face of Dahua North America.
Luminys Systems Corp is a small Southern California lighting supplier. [UPDATE: We have added more in the Research section about the relationship found in corporate filings]
Foxlink is a sizeable, publicly traded Taiwan manufacturer.
The letters conclude similarly about expanding an American-owned brand:
The change allows us to expand our distribution channel with an American-owned brand, introducing a wide variety of products to serve dealers and users in the North American market.
Various sources close to the company tell IPVM the move is intended to work around or overcome FCC and NDAA bans against Dahua.
Internal Email
Unlike the dealer and distributor emails, the internal email makes much stronger claims, including that:
An American "owned" brand will be released
This company will function "wholly independently"
2024 will deliver a new supply chain and new business line in addition to the new brand
At the same time, Dahua reiterated to employees that Dahua possesses all the capabilities to deliver products in North America.
The internal email does not directly name or discuss US government regulations such as by the FCC or the NDAA, nor does it explain how Dahua has these capabilities, yet this other company will now function "wholly independently."
Role of Luminys
Luminys is definitely working with Foxlink, though m the US Luminys office had no knowledge of this.
We called Luminys, and they bluntly told us they had no idea about Dahua or any such deal. The company's About Page describes itself as:
manufactures high-intensity lighting systems for applications where image quality is paramount. We serve motion picture and television production
On LinkedIn, only eight employees are listed and just 16 followers, though notably 1 of those 16 is Dahua USA's sales team lead, Rick Tong:
Foxlink / Luminys Leadership Connections
In a 2023 FoxLink annual report disclosure, Chairman T.C. (Terry) Gou is listed as holding an office with numerous companies, including Luminys Systems Corp:
Likewise, an individual named Lin Kun-Huang is listed as port Foxlink's executive team as the "Corporate Governance Officer 公司治理主管."
In the Dahua emails, the Foxlink executive Lin Kun-Huang is now listed as Director of Dahua Technology USA, though given Dahua's statement about the impending new brand, this indicates Lin will be in charge of the new entity / brand.
As such, it is clear that Foxlink is involved with Luminys despite Luminys being a small company that resells and rents lighting equipment.
Role of Foxlink
Foxlink's participation makes far more sense. As a large Taiwan-based manufacturer, they have the potential to, at least, try to fill the "new supply chain" that Dahua alludes to.
Foxlink annual revenue is ~$3 billion USD with under 5% net income margin for a market valuation of ~$750 million USD. While it is not very profitable nor highly valued, the company manufacturers / assembles significant volume. Foxlink's 2023 investor deck lists locations primarily in Taiwan and China:
Notably, a 2022 Foxlink press release indicates it is building a 168,897 square feet factory in Arizona to "produce green energy products, such as charging stations, battery module assembly and energy storage equipment, etc."
The name Foxlink sounds similar to Foxconn, another Taiwan manufacturer, albeit with 60 times greater annual revenue. The companies are founded by a pair of brothers (Terry - Foxconn, and T.C. - Foxlink). However, various sources disagree on the depth of the two companies' relationship. Foxlink acknowledges that prior to founding Foxlink, T.C. was President at Foxconn.
Either way, even if Foxlink only has indirect connections to Foxconn, Foxlink is certainly large enough to manufacture "Dahua" or whatever Dahua et al. choose to call Dahua USA products going forward.
Real "Manufacturer"?
The problem is, central to FCC and NDAA regulations, who actually becomes the real "manufacturer" of these products?
Foxlink could assemble the hardware, but does that mean that Foxlink is the manufacturer?
A critical element unspoken by Dahua is who develops the firmware and software for Dahua (or whatever these products are now). That is much clearer to answer. No short-term feasible way exists for Foxlink or others to completely or even primarily develop new firmware and software as the complexity and overhead of that is far greater. And that is where their core intellectual property and cybersecurity risk exist.
Dahua Expected Approach
We expect Dahua to use Foxlink or whoever the new "supply chain" provider as a claim that they no longer manufacture or produce these products. And the argument will then become, if they no longer produce those products, that US government regulations such as the FCC new device authorization or NDAA government bans can no longer be applied.
Partner Benefits
We believe this will be attractive to the remaining Dahua partners and re-sellers, who will see this as, at least, muddying the waters about whether these regulations any longer apply. Recall that Dahua has been quite brazen in its arguments against the NDAA, even alleging falsely that its video surveillance recorders were not covered.
We have seen this help Lorex sales as more people are confused with the new Taiwan Skywatch owner despite the fact that the new owner keeps on selling Dahua-produced products.
Still Clearly Produced By Dahua
What makes an IoT product a product is its firmware / software, as a vast number of contract manufacturers can assemble hardware, whether it is in Hangzhou, PRC, or Hollywood Hills, USA. However, very few can develop IoT firmware / software and it is vastly harder and practically infeasible to switch out the underlying software within products. OEMs often claim this for special treatment, but even simple examinations show that the underlying hundreds of thousands or millions of lines of code therein are still the same.
Outlook - Dahua To Force Regulatory Ruling On This
We expect Dahua (again, whatever this brand is to be named) to aggressively promote this as FCC and NDAA authorized, forcing a regulatory ruling on whether Dahua can have someone else assemble products still using the fundamental firmware and software of the human rights abuse sanctioned, NDAA banned and FCC new authorization prohibited Dahua.
In the internal email, Dahua reassures employees that there will be no changes including same pay for employees.
It will be interesting to see whatever new entity, company, or brand that operates "wholly independently" follows through with this.
Dahua's North America revenue and profits have been severely negatively impacted by the bans and the sell-off of Lorex. Despite that, they have focused on keeping their team together and paying them well, even when missing numbers. Will or can this "wholly independent" entity still do so? Financially that would be challenging to justify unless they can radically turn things around quickly, which would be hard given the fundamental dependence on Dahua and the justifiable scrutiny involved.
One other fascinating element is where this new company gets news products / technologies from - most notably analytics and cloud, given their importance to growth. Given they have to use the existing code base, who else would it come from then Dahua? I am fascinated to see what attempts Dahua newco make to get around this.
Theoretically, if money was no object, one could build an entire new code base and develop entirely new features going forward but that's economically feasible (and it's why even large companies such as Honeywell, UTC and Panasonic defaulted to relabelling Dahua).
Highly atypical for a corporate transaction, Dahua has issued no official press release or notice on its website, social media, etc. They may do so later and if they do, we will add it in.
In our experience, normally companies release a formal public statement at the same time or shortly before they contact their partners.
Update: On January 25, 2024, Dahua USA filed a statement of information that added Kun Huang Lin, the Foxlink executive as the only Director of Dahua USA and as the CFO with Tim Wang, the long-time Dahua USA head remaining as CEO:
Also, the 2010 Saturn Street address matches Foxlink USA records including on its own LinkedIn page and D&B:
However, Dahua has still not made any public statement not any filings to the FCC about this potentially fundamental change.
completed the disposal of all shares in Dahua Technology USA. The buyer is Central Motion Picture USA, a unit of a Taiwanese filmmaker, which paid $15 million. The deal also included the sale of $1 million worth of inventory products from Dahua's Canadian unit to the purchaser.
While the name of the purchaser is different from what Dahua emailed, that entity is effectively controlled by the same group / owner - Foxlink, as the Nikkei expands:
The company was under the control of the Kuomintang during its former one-party rule, along with other media enterprises, but it was privatized in 2005 under the Democratic Progressive Party administration of then-President Chen Shui-bian. Gou Tai-chiang, a younger brother of Foxconn tycoon Terry Gou, took control afterward and remains the chairman.
So the $1 million worth of inventory is still NDAA-banned equipment. It still remains to be seen who will manufacture the "new" products. If they use hisilicon chips, they will still be NDAA banned. And they will still have to apply for FCC licensing. Who knows what will happen. If the government does their due diligence, they could still determine that it is effectively enough of the same shell company to continue the ban...???
