IPhone Maker Hon Hai Again Warns Components Crunch Worsening

(Bloomberg) -- Hon Hai Precision Industry Co. warned that the global supply crunch that has hit the consumer electronics and automaking industries will worsen this quarter, after it weathered component shortages to post better-than-expected quarterly profits.

The world’s largest contract electronics manufacturer and main assembler of iPhones reported net income of NT$28.2 billion($1 billion) in the three months ended March, beating the average NT$24.4 billion of adjusted analyst estimates. Revenue in the second quarter will likely be steady from the previous three months, as growth in its consumer electronics and components divisions is countered by a slowdown in its server and computer divisions, in part because of parts shortages, the corporation said Friday.

“Component shortages in the second quarter will be more severe than the first quarter,” Chairman Young Liu said on a conference call. He reiterated previous comments that shortages may persist until the second quarter of 2022 and that the impact on its businesses won’t exceed 10%.

Taiwan’s Hon Hai is among a crop of leading companies from Sony Corp. to Stellantis NV that have sounded the alarm over a growing shortage of key components like semiconductors and display drivers vital to product manufacturing. Liu said last month that component scarcity has worsened since late March and the lead time for some parts is now as long as 52 weeks. Its shares have slipped 20% since rising to a record in March, as the extent of the supply crunch became more evident.

To boost its own semiconductor capabilities amid the prolonged shortage, Hon Hai agreed earlier this month to set up a joint venture with Yageo Corp. to develop chips with average selling prices lower than $2.

“This JV will help Hon Hai’s ongoing business transformation into semi/auto business to increase content value with margin expansion,” BofA analysts wrote in a May 6 note, adding the company’s strong sales in the first quarter and April indicate its share gain in Apple Inc. business and the server market.

Sales during the quarter jumped 44% to NT$1.35 trillion, in line with analyst estimates, the company said last month, helped by robust demand for Apple’s new 5G devices and other gadgets that help consumers stay connected at home during the pandemic.

While prices of components as well as raw materials have increased, the impact on Hon Hai will be limited, Liu said. The firm still aims to reach gross margins of 7% this year, he added.

But the incessant spread of Covid-19 in India, which is growing in importance as a manufacturing base for Hon Hai, may cloud the firm’s prospects. The company, also known as Foxconn, cut iPhone 12 production in the country by more than 50% after infected workers left its factory, Reuters reported earlier this week.

To reduce its reliance on consumer electronics, the assembler has been casting around for new growth drivers and it’s identified electric vehicles as a key emerging industry. In recent months, Foxconn has entered into partnerships with an array of carmakers including Zhejiang Geely Holding Group Co., Byton Ltd. and Fisker Inc. to boost its automotive capabilities. Its agreement to develop an EV with Fisker will now include a factory in the U.S., the companies said Thursday.

Read more: Fisker Soars as EV Deal With Foxconn to Include U.S. Factory

(Updates with outlook, company comments)

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