(Bloomberg) -- Hon Hai Precision Industry Co.’s quarterly profit fell 24% after tepid smartphone demand and U.S.-Chinese tensions depressed sales ahead of the coronavirus outbreak.
Apple Inc.’s most important manufacturing partner posted net income of NT$47.8 billion ($1.58 billion) in the October-December period, based on calculations by Bloomberg News off information Hon Hai has submitted to the local stock exchange. That’s down from NT$62.2 billion in the same quarter of 2018.
Hon Hai, which gets half its revenue from making iPhones and other devices for Apple in China, grappled with rising U.S. tariffs on its goods even before Covid-19 smothered demand for electronics. Known also as Foxconn, the company has said it’s resolved labor shortages and is now back at normal seasonal capacity.
But it remains to be seen how it fared during the about-to-end March quarter, when the outbreak was declared a pandemic and government lockdowns dealt unprecedented shocks to the global supply chain.
Signs are that Apple’s Chinese-centric manufacturing -- of which Hon Hai is the linchpin -- is slowly getting back on track. The next iPhones with 5G wireless capabilities remain on schedule to launch in the fall, partly because mass production isn’t slated to begin until the summer, people familiar with matter have said. Yet the sort of assembly that Foxconn specializes in is but one part of Apple’s supply chain: the U.S. company and its partners spend months or even years sourcing components around the world and any disruptions to that complex network could delay future devices.
What Bloomberg Intelligence Says
Hon Hai’s sales pressure from the global coronavirus spread, U.S.-China trade dispute, smartphone-market weakness and a broader slowdown in tech spending won’t abate quickly, even as its Chinese manufacturing gets back to full seasonal capacity. The world’s largest electronics manufacturing-services provider is investing heavily in automation to reduce costs and improve asset efficiency. Hon Hai has an opportunity to capitalize on the rise of industrial internet-of-things deployment and vehicle electrification, which will develop in the next 3-5 years and provide meaningful sales growth opportunities.
- Matthew Kanterman and Charles Shum, analysts
Click here for the research.
Read more: Apple’s Supply Chain Woes Linger Even as China Recovers
As China’s largest private employer and a key partner to many of the world’s most recognizable consumer brands, Hon Hai has become a symbol of how the outbreak could disrupt the global supply of made-in-China electronics.
Foxconn has already slashed its 2020 revenue projections in the wake of the epidemic, while Apple withdrew its forecast for the current quarter. The contagion has disrupted Apple’s carefully calibrated production chain and shaken up many other Chinese-based manufacturers. Hon Hai was forced to postpone the reopening of its “iPhone City” mega-complex in the central city of Zhengzhou while it imposed strict quarantine measures on thousands of laborers. But Foxconn has since sharply raised signing bonuses to attract the new workers it needs to assemble its products.
The Taiwanese company is now diversifying away from its main Chinese production base to mitigate the impact of disruptions. It’s spending more than NT$17 billion building factories in India and Vietnam, responding to customers’ needs, Chief Financial Officer David Huang said at an earnings conference last year. Those two countries will become regional manufacturing hubs, he added.
(Includes quarterly profit figures in first two paragraphs)
For more articles like this, please visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2020 Bloomberg L.P.