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  • Bloomberg

    Samsung's Surprise Leaves More Confusion Over Tech

    (Bloomberg Opinion) -- Samsung Electronics Co.’s second-quarter earnings seem like good news. But it’s really not as simple as that.Revenue beat estimates by around 3.6% while operating profit topped even the highest of sell-side analyst estimates by 6.3%, the South Korean giant reported Tuesday. Right off the bat, those numbers carry a caveat: The company posted a one-time gain related to its display business that would have helped the bottom line.Still, there’s no denying that the top line was largely ahead of expectations — likely due to sales of memory chips used in servers. That doesn’t mean that Samsung has beaten the Covid-19 pandemic, though. Total revenue is 7.4% lower than a year earlier. These numbers reflect the mid-point of guidance, which Samsung provides within days of a quarter’s closing. We don’t yet know the size of that one-time profit on its display business. However, Bloomberg News reports that it could be as much as 1 trillion won ($840 million) in compensation from Apple Inc. for fewer-than-promised orders of screens used in iPhones, iPads and other devices. Such a figure would account for most of the discrepancy between earnings and estimates.Rather than being good news, the payment would represent a bad sign for the technology sector, reflecting weaker demand for gadgets. We saw further signs of that late Monday, with Foxconn Technology Group’s Hon Hai Precision Industry Co. reporting a 9.1% slump in June sales, closing out second-quarter revenue with a 2.3% drop. Hon Hai assembles iPhones. This is traditionally low season for Apple’s flagship device, so much of that decline will be for other products that Foxconn makes, including personal computers, servers and data-center equipment. While a single-digit drop isn’t terrible given what’s happening in the global economy, it does contrast with the optimism shown in stock markets in recent weeks. Apple shares are at an all-time high, while Amazon.com Inc.’s market value just topped $1.5 trillion.Samsung investors seem a little befuddled, too. Its shares rose as much as 1.6% Tuesday after the announcement, but fell later in the morning as the market started digesting the news. The reaction also tells us that rather than being a positive sign, this earnings tidbit highlights just how confusing the current situation is.Samsung’s results are an allegory for much of what we see in the tech sector these days: Bad news (revenue dropping) taken as optimistic because it beat estimates, while seemingly good news (operating profit surpassing expectations) actually being a sign of weakness due to it being a compensatory payment.These are the kinds of conflicting signs we’ll see a lot more this earnings season. Investors need to get used to flying blind.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Can the U.S. End China’s Control of the Global Supply Chain?

    Can the U.S. End China’s Control of the Global Supply Chain?

    (Bloomberg) -- The trade war amplified calls in the U.S. and elsewhere for reducing dependence on China for strategic goods. Now, the pandemic has politicians vowing to take action.The Trump administration has talked about bringing supply chains home from China, and even publicly floated the need for a group of friendly nations in Asia that could help produce essential goods. President Donald Trump last month even said the U.S. would “save $500 billion” if it cut off ties with China.But interviews with nearly a dozen government officials and analysts in the Asia-Pacific region show that any broader effort to restructure supply chains is little more than wishful thinking so far. While governments are pushing to win investments, such as Taiwan Semiconductor Manufacturing Co.’s planned state-of-the-art semiconductor factory in the U.S., it won’t be simple to dismantle an entrenched system when many companies are struggling to survive.More likely is that the virus will accelerate a change that was already driven by market forces as rising wages and costs in China over the past decade caused an exodus of lower-value manufacturing, much of it to Southeast Asia. That’s despite the desire from some in the Trump administration to start decoupling the world’s biggest economies as the U.S. and China spar over everything from the virus to 5G networks to Hong Kong.“The rhetoric meets the reality, which is that many firms have supply chains set up the way they do for very sensible reasons,” said Deborah Elms of the Asian Trade Centre, which has seen an increase of companies looking for advice on reorganizing to increase competitiveness. “Coming out of Covid, it’s going to be even harder to move supply chains because your cash flow is low, your staff are working from home or coming slowly back into the office, and the business climate has shifted.”While the world trade network mostly held up well amid rolling lockdowns as Covid-19 spread, the economic cost fueled calls among politicians for greater self-sufficiency and alternatives to China. U.S. Secretary of State Mike Pompeo, whose department announced an Economic Security Strategy last year, in April named Australia, New Zealand, Japan, India, and South Korea as countries that the U.S. has been talking to on supply chains.A key plank of the State Department’s new Economic Security Strategy is expanding and diversifying supply chains that protect “people in the free world,” according to Keith Krach, a State Department official who leads efforts to develop international policies related to economic growth.Krach said in April a so-called “Economic Prosperity Network” of like-minded allies would be built for critical products.‘China Plus One’Industries would include pharmaceuticals, medical devices, semiconductors, automotive, aerospace, textiles and chemicals, among others.But the idea right now appears to lack any firm foundation. The State Department doesn’t have jurisdiction over trade, and officials in other Asian countries said no formal talks were taking place. A person close to the administration said Krach is prone to pushing grand ideas publicly that haven’t yet become policy.Still, other governments are moving on their own to shift production away from China -- especially since the Covid disruptions. This includes Taiwan and Japan, which were among the biggest investors in China’s manufacturing capacity in the early days.“Many companies have already begun adopting a ‘China plus one’ manufacturing hub strategy since the U.S.-China trade war began in 2018, with Vietnam having been a clear beneficiary,” said Anwita Basu, head of Asia country risk research at Fitch Solutions. While the pandemic will give that another push, “shifts away from China will be slow as that country still boasts an annual manufacturing output that is so large that even a group of countries would struggle to absorb a fraction of it.”In 2019, Taiwanese officials encouraged the island’s firms to build a “non-red supply chain” outside of China, passing a law that promised rent assistance, cheap finance, tax breaks and simplified administration for investments in Taiwan. The move helped the island’s economy weather the trade war last year and led to more than NT$1 trillion ($33.5 billion) pledged or invested domestically, and more overseas.Japan recently started down the same path, with Prime Minister Shinzo Abe’s government budgeting about 220 billion yen ($2 billion) for companies shifting production back home and 23.5 billion yen for those seeking to move production to other countries.“Everyone agrees we really have to reconsider the sustainability of supply chains,” Hiroaki Nakanishi, chairman of Hitachi Ltd. and head of Japan’s biggest business lobby Keidanren, said on television last month. “It’s unrealistic to suddenly return all production to Japan. But if we are totally reliant on one specific country and they have a lockdown, there will be huge consequences.”South Korea has similar plans as part of its economic blueprint for the rest of the year, announced earlier this month. The government said it will provide tax incentives, ease investment-related regulations and expand financial support for companies that ‘u-turn.’ Yet, it hasn’t said how much money will be earmarked for the entire support program.For all that, China retains some key advantages. Last year 38% of Taiwan’s $11 billion of overseas investment still went to the mainland, as did 10% of Japan’s -- despite increased investments in Southeast Asia over the past few decades due to periodic bouts of anti-Japanese rioting in China.Young Liu, chairman of Taiwan-based Hon Hai Precision Industry, whose Foxconn unit manufactures iPhone in plants in China, said in mid-May that it’s difficult to move assembly of mobile devices to the U.S due to the sheer number of workers needed.“China remains unmatched as a manufacturing site given its numbers of skilled workers, deep supplier networks and the government’s credible public support for manufacturers and provision of reliable infrastructure,” wrote Gavekal Dragonomics analyst Dan Wang in a report in April.Even if companies find economic alternatives to Chinese factories, or bow to political pressure to increase production in their home markets, there’s another reason why production inside China continues to make sense: the vast and growing Chinese domestic market.Tesla, HoneywellTesla Inc. is now producing cars there for what is now the world’s largest auto market, and last month Chinese Premier Li Keqiang sent Honeywell International Inc. a letter welcoming its new investment in Wuhan, the city where the coronavirus outbreak started. He and other Chinese officials have touted continued economic cooperation with the U.S. and vowed to implement a “phase one” trade deal with the U.S. reached in January.“The formation and development of global industrial and supply chains are determined by market forces and companies’ choices,” Chinese foreign ministry spokesman Geng Shuang said in March. “As such, it is unrealistic and insensible to try to sever them or even trumpet ‘shifting’ or ‘decoupling’ theories as they run counter to economic law.”For all the talk of dependence on China, the pandemic showed that other nations could quickly adapt to meet the need for critical supplies when China’s lockdown halted deliveries of protective clothing, ventilators and medical supplies. Vietnam rapidly ramped up production of face masks, exporting more than 415 million in four months, while the U.S. pushed automakers and other manufacturers to retool plants to make respirators and other critical supplies.Over the long term, however, there are questions of whether those models are sustainable -- and who will pay for new plants outside China.Waving a WandA May 14 executive order from Trump allows the U.S. International Development Finance Corp., America’s development bank for emerging markets, to partner with the Department of Defense in the U.S. to lend money to American companies looking to build out supply chains for critical goods such as ventilators and generic drugs.But with governments already having to fund trillions of dollars in bailout packages for existing businesses and companies going bust in droves, finding the extra capital to restructure global supply chains is a tall order. Andrew Hastie, an Australian lawmaker and chair of the nation’s security and intelligence committee, called in a recent essay for “time limited tax incentives” to build national self-reliance in key pharmaceuticals, medical supplies and other critical goods.In the end, the biggest force diluting China’s position in the global supply chain will likely be the long, slow evolution of global trade, as companies see opportunities that arise from new markets, new technologies and changing patterns of wealth. Why would a firm “say to their staff and their shareholders we have opted for political reasons to change the way that we do things,” said Elms, whose organization helps governments formulate trade policy.“The numbers have to make sense,” she said. “The structure that you have is based on millions of individual company decisions. It’s not so easy to wave a wand and say: Make it so!”(Updates with South Korean policy to get companies to invest at home in 16th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Taiwan Draws Up Plan to Woo $1.3 Billion of Annual Tech Research

    Taiwan Draws Up Plan to Woo $1.3 Billion of Annual Tech Research

    (Bloomberg) -- Taiwan is dangling incentives to attract more than NT$40 billion ($1.3 billion) of annual investments in research and technology, creating a seven-year blueprint to safeguard the island’s lead in semiconductors and other cutting-edge fields.As part of the initiative, the cabinet plans to allocate more than NT$10 billion to entice foreign chipmakers to set up R&D facilities locally, confirming an earlier Bloomberg News report. The government said Thursday it aims to subsidize as much as half of all research and development costs incurred by global chip companies that build centers on the island.The endeavor escalates global competition for much-sought-after semiconductor technology and is intended to build on the island’s technology industry, led by major players such as key Apple Inc. suppliers Taiwan Semiconductor Manufacturing Co. and Hon Hai Precision Industry Co. Taiwan has been caught in the middle of a clash between the U.S. and China over the development of chip technology that powers everything from smartphones to 5G base stations.Last month, the Trump administration barred any chipmaker using American equipment from supplying China’s Huawei Technologies Co. without approval, dealing a major blow to TSMC -- the world’s largest contract chipmaker -- and its peers.Taiwan President Tsai Ing-wen has pledged to transform Taiwan into an R&D hub for emerging technologies. Her government is now pursuing more foreign tech investments from multinationals seeking to shift out of China over concerns about the intensifying U.S.-China trade war and their desire to reduce dependency on the world’s second-largest economy.The incentive program is mainly targeted at makers of memory chips, though part of it will also be used to attract global 5G and artificial intelligence technology companies.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    Little-Known Data Show Signs of a Tech Bounce

    (Bloomberg Opinion) -- Buried in a set of little-known data are early signs that the hardware side of the technology sector may be rebounding from the pandemic-driven plunge.Investors generally need to wait until a few weeks after a quarter closes to get a sense of how well (or badly) business has been, or hope that a company will provide an update when the situation changes. Except in Taiwan. A decades-old regulation requires companies there to report sales every month. This information isn’t useful only to investors in locally traded stocks. What’s listed is a broad range of companies that make chips, components, half-assembled modules and final products used in almost every electronics device in the world. The numbers can also provide a snapshot of output in China, where most Taiwanese technology manufacturers have the bulk of production.As early as January, it became obvious that the coronavirus would be a nightmare for tech companies. We now know that Apple Inc. posted a 7.2% drop in March-quarter sales of iPhones and iPads, while its major supplier, Foxconn Technology Group, suffered its biggest dive in revenue for seven years.More interesting is to see what’s been going on since. A look at April sales data from Taiwan enabled me to crunch numbers. What we find is a bounce in revenue that gives some hope for the global sector.Taiwan Semiconductor Manufacturing Co. and Foxconn’s Hon Hai Precision Industry Co. are the most famous names in this data set, because they’re the biggest in their category and have a VIP client list that includes Apple, Qualcomm Inc., Huawei Technologies Co. and Sony Corp. Yet hundreds of others, such as Pegatron Corp., Quanta Computer Inc. and Largan Precision Co., collectively supply most of the industry.By aggregating the data month by month, comparing to a year earlier to smooth out seasonality, and looking at the sub-sectors within tech — defined by the Taiwan Stock Exchange — such as components suppliers, chipmakers, or computer assemblers, we can get an understanding of what was happening just a few weeks ago.Computers and peripherals, which include major PC and server makers Quanta and Compal Electronics Inc., showed the largest rebound, from an 11.9% drop in the January to March period to a 7.9% rise in April.   Electronics parts and components, such as circuit-board supplier Compeq Manufacturing Co., turned a mild decline into solid growth, from a 3.1% decline into a 9.1% increase.   Other electronics, including Hon Hai, which not only assembles iPhones but servers and networking equipment, went from an 11.8% fall to flat.   Chips, headlined by TSMC, remained incredibly strong.   Optoelectronics, which is largely displays and camera modules, shows a prolonged decline.One of the key takeaways is the relative strength in corporate-focused hardware, and possible continued weakness in gadgets. Foxconn pointed to this earlier in May, when it told investors that its consumer-devices division, which encompasses iPhones, would fall at least 15%, while enterprise products would climb 10%.There are two important caveats to the data.The first is that they track just Taipei-listed companies, and not some big names like Huawei and Samsung Electronics Co., which also manufacture their own hardware. However, it’s a like-for-like comparison — those companies aren’t included in last year’s data, either — and the broad reach of Taiwan’s tech sector means that even Huawei and Samsung are likely part of its supply chain.A more important note is that this is just for one month. Some of that April uptick is simply catch-up production for time lost at the height of the pandemic. Yet clients wouldn’t place orders if they didn’t feel that there’s end-demand somewhere. Autos and textiles are cutting production and shuttering factories in the knowledge that such a pickup in sales isn’t likely. With global turmoil making companies reticent to give predictions, investors wait in the dark for an update or a quarterly conference call. Even if we don’t know whether this is a true rebound, or merely a dead-cat bounce, at least there’s more timely data available to examine.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Foxconn Forecast Portends More Bad News for Apple

    Foxconn Forecast Portends More Bad News for Apple

    (Bloomberg Opinion) -- Foxconn Technology Group just painted a bleak picture for the June quarter, and the implications for its largest client aren’t good.While overall revenue at Foxconn’s Hon Hai Precision Industry Co. will drop a moderate “single digit” percent, that decline is softened by pandemic-driven demand for enterprise and computing products.Hon Hai’s consumer products division, which includes the millions of iPhones it churns out for Apple Inc. each quarter, will fall at least 15% from a year earlier, the Taipei-based company told investors late Friday. That’s even worse than the 14% drop experienced in the March quarter. By comparison, Apple posted a 7.2% drop in revenue from iPhones and iPads combined.While Apple is Hon Hai’s largest customer, at around half of revenue, it’s not the only one. Other consumer products manufactured by the Taiwanese company include game consoles and accessories.Where Foxconn can take solace is in the booming demand for servers, PCs, networking equipment, data centers and other enterprise products. Its computing division will post revenue growth of at least 15% this quarter, which is nice but accounts for only 21% of revenue. Enterprise sales will climb more than 10% but make up only 24% of total revenue.For years, Foxconn enjoyed the benefits of riding the iPhone wave, the most successful technology product of this generation. Now its dependence on consumer electronics, at 50% of sales, is proving to be its greatest weakness. “The last part of March and the first part of April were very depressed, and then we’ve seen a pickup relative to that period of time in the second half of April,” Apple CEO Tim Cook told Bloomberg News two weeks ago. The company this month declined to provide a forecast for the first time in at least a decade.Foxconn’s outlook provides a glimpse into a future that Apple dare not predict. And it’s not a pretty sight.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • IPhone Maker Foxconn’s Profit Gutted by Smartphone Slump

    IPhone Maker Foxconn’s Profit Gutted by Smartphone Slump

    (Bloomberg) -- Hon Hai Precision Industry Co. forecast another revenue decline after profit plunged by the most on record in the March quarter, when the novel coronavirus froze much of its China production and walloped global smartphone demand.Apple Inc.’s most important manufacturing partner recorded an 89% decline in net income to NT$2.1 billion ($70 million) in the first three months of 2020. Chairman Young Liu told analysts Friday the company anticipates a single-digit percentage decline in revenue in the June quarter from a year earlier. That would be its third consecutive quarterly sales drop.The earnings decline drove home to extent to which Covid-19 and the resultant global lockdown has chilled electronics demand and driven up costs for upstream producers like Hon Hai that had to adapt to supply chain disruption. Global shipments of smartphones fell at their fastest rate on record in the first quarter, hitting the assembler’s sales even though its main production facilities managed to return to full seasonal staffing levels around mid-March.On Friday, Hon Hai, known also as Foxconn, said it incurred costs related to the pandemic of NT$10 billion, though some of that will be compensated by the Chinese government. It added it had put the worst of the slump behind it but the company, which gets half its sales making iPhones and devices for Apple, warned smartphone demand remained uncertain.What Bloomberg Intelligence SaysHon Hai’s outlook for strong sequential and year-over-year 2Q sales growth for enterprise and computing products and components -- comprising about 55% of sales -- supports our outlook of a w-shaped recovery from the pandemic, in our view. But demand cuts may mount in 3Q and drive down sales before a rebound takes hold in 4Q.\- Matthew Kanterman, analystClick here for the research.Read more: Global Smartphone Market Suffered Worst Contraction in HistoryRevenue slid almost 12% to NT$929.7 billion, according to Bloomberg News’ calculations based on previously reported monthly sales numbers.Liu warned that uncertainty will continue to dog electronics demand into the second half, after a singularly poor first quarter.Production at many of Apple’s Asian partners ground to a halt in early 2020 after efforts to curb the spread of Covid-19 kicked in. That resulted in severe shipping delays for devices and led to component supply bottlenecks. Consumers also sheltered at home, hammering retail sales. At one point, Apple shuttered all 42 retail outlets in China, a critical market for the company, followed by store closures in other countries. While shops in China have reopened, most of its international ones have not.Covid-19 has also delayed product development and launches. Apple’s four upcoming redesigned iPhones with 5G will come out several weeks later than usual -- but still within the fall window -- Bloomberg News has reported. In May, Apple failed to provide a forecast for the first time in more than a decade.Foxconn has already slashed its 2020 revenue projections in the wake of the pandemic. It told investors in April that it still had time to help Apple launch new iPhones in time for the holidays, but cautioned the schedule could be disrupted if the pandemic persists.(Updates with revenue forecast from the first paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • What will drive the Hon Hai Precision Industry Co share price higher?

    What will drive the Hon Hai Precision Industry Co share price higher?

    Shares in Hon Hai Precision Industry Co (TPE:2317) are currently trading at 78.8 but a key question for investors is how the economic uncertainty caused by Cor8230;

  • Broadcom Sounds Alarm on Unforeseen Tech Industry Disruptions

    Broadcom Sounds Alarm on Unforeseen Tech Industry Disruptions

    (Bloomberg) -- Broadcom Inc. warned customers they’ll need to place orders for parts at least six months ahead of time, a surprisingly long lead time that points to wider than anticipated disruptions to the tech industry’s global supply chain.Lockdowns in Malaysia, Thailand, Singapore and the Philippines are “closing or severely restricting business operations,” according to a letter to customers from Nilesh Mistry, Broadcom’s vice president of sales, dated April 13 and seen by Bloomberg News. He urged clients to put in their orders at least 26 weeks ahead of delivery -- meaning anything ordered now will get shipped right around the crucial holiday season. The typical lead time for deliveries is about two to three months.The missive from Broadcom -- which makes crucial components for Apple Inc.’s iPhone -- drives home concerns that Covid-19 is disrupting the tech supply chain well beyond China, where the novel coronavirus first emerged to impact global production lines. While China’s recovering its footing, lockdowns and quarantine orders in crucial regions such as Southeast Asia are exerting a still-unknown impact on the supply of everything from Nintendo Switches to smartphones.“Air and sea transport options have become unreliable and become more expensive and have increased delays,” Mistry wrote. His letter to customers didn’t specify which products are experiencing delayed shipments and what Broadcom’s normal lead time is between orders and delivery. “We hope that as the global community finds better methods to address the Covid-19 pandemic, the conditions will abate and we will be able to resume our normal operations.”The San Jose, California-based company declined to comment.Not Made in China Is Global Tech’s Next Big Trend: Supply LinesTerry Gou, whose Hon Hai Precision Industry Co. makes many of the world’s most recognizable consumer electronics including the iPhone, said in March China’s production restart had proven faster than expected. But he was worried that disruptions outside of China could become an issue as the coronavirus spreads globally.Broadcom is part of the same supply chain that most of the world’s chipmakers use to outsource production, testing and packaging of their products. It’s a critical link for products from mobile phones to data-center hardware. Any delays in the delivery of its semiconductors could spread throughout that supply network, potentially leading to missed launches of some of the world’s most high-profile and widely used electronic devices.Intel Corp. and Texas Instruments Inc. will report earnings next week, when they’re certain to face questions from investors about their ability to keep their factories running and fill customer orders. Products from companies such as Qualcomm Inc., Nvidia Corp. and Advanced Micro Devices Inc. are built mostly by Taiwan Semiconductor Manufacturing Co., then tested and packaged by other companies in China and Southeast Asia. Some companies perform elements of the process in-house, and a shrinking group are capable of doing all the steps themselves.Wireless customers include Apple and Samsung Electronics Co., which use Broadcom chips to add Wi-Fi and other connectivity to some of the world’s best-selling smartphones. In networking, Broadcom’s switch chips are the market leaders, going into machinery that’s used by all of the biggest equipment makers, including Cisco Systems Inc. and Huawei Technologies Co., and companies such as Amazon.com Inc. that build their own gear.Read more: Nintendo Is Likely to Suffer Global Switch Shortages From VirusOn March 12, Broadcom withdrew its annual sales forecast and gave weak near-term guidance, citing the impact of the pandemic. Chief Executive Officer Hock Tan told investors that, while fundamental demand was still strong and he hadn’t see any negative impact in the first quarter of the year, “visibility was lacking.”As part of a bond offering last week, Broadcom warned investors it was experiencing some disruption to parts of its global supply chain. In the “related risks” section of a regulatory filing, the company highlighted that a main warehouse and a number of assembly and test subcontractors are in Malaysia, which has shut down all non-essential businesses. The warehouse is fully operational, but “many of the facilities of our suppliers and service providers are not,” the company said at the time.“An extended closure of these facilities may require us to move assembly and test services to providers in other countries, and may, eventually, lead to a shortage of some components needed for our products,” Broadcom said. “In the event restrictive measures in Malaysia are intensified and our warehouse is shut down or required to operate at a reduced capacity, our ability to deliver product to our customers would be severely limited.”The test and assembly of chips includes coating them in protective plastic, adding electrical contacts that let them communicate with the rest of the device, and making sure they function. Such work is less expensive and easier to conduct than the processing of silicon wafers that make up the fundamental circuits of the chips. Much of the packaging work was shifted to countries with lower labor costs decades ago.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • iPhone China Shipments Rebound as Manufacturing Resumes

    iPhone China Shipments Rebound as Manufacturing Resumes

    (Bloomberg) -- Apple Inc.’s iPhone shipments in China rebounded in March as the world’s second-largest economy worked to reboot its manufacturing industry following the disruption caused by the novel coronavirus outbreak.Shipments of Apple’s marquee device jumped 19% in March from a year earlier to 2.5 million units, according to Bloomberg calculations based on monthly data from the China Academy of Information and Communications Technology, a government think tank. The broader smartphone market, including Android devices, shrunk by roughly 22% to 21 million shipments, the academy said.February, which was most impacted by government lockdown measures designed to curb the spread of the virus, saw iPhone shipments plunge more than 60% year-on-year as factories remained shut past the Lunar New Year holiday break.Apple’s assembly plants in China, run mainly by Hon Hai Precision Industry Co., also known as Foxconn, slowly resumed operations through that month and into March. At the mega-complex in Zhengzhou, known as “iPhone City,” more than 200,000 workers had returned to production lines as of late March, according to the local authority’s website. The factory shipped almost 300,000 iPhone units per day at that point, a similar output to its pre-coronavirus capacity, the authority said.Read more: Apple Plans iPad-Like Design for Next iPhone, Smaller HomePodApple is preparing a redesign of its top-tier iPhones, borrowing cues from the latest iPads, as part of a major fall refresh that will see 5G added to as many as four new handset models and the release of two key new accessories, Bloomberg News reported on Monday. Some of the new iPhones could be released several weeks later than normal because of the disruptions caused by the coronavirus pandemic.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    China Tech Looks Unready for What’s Coming Next

    (Bloomberg Opinion) -- Smartphones are a daily necessity, weddings will still go ahead, and enterprises will embrace digital upgrades. Those are just some of the justifications that Chinese technology companies such as Xiaomi Corp., Baidu Inc. and Tencent Holdings Ltd. have for telling us that the worst may be behind them as the country gets through the Covid-19 pandemic. That’s a risky tone to take. A global recession is upon us, and they’re not fully taking it in.China is looking at the reopening this week of Wuhan, the epicenter of the outbreak, after months of lockdown and seeing it as a sign that things are getting better. The messaging is obvious: China is back in business, and its domestic companies are in the clear.But the rest of the world sees a different picture: New York and Milan resemble ghost towns, Tokyo is facing a state of emergency, Manila is under curfew, and Singapore just banned gatherings. “Smartphone demand is resilient; it’s a daily necessity so demand will rebound quickly,” Xiaomi Corp. Chief Financial Officer Chew Shouzi said in a media teleconference March 31. “We are cautiously optimistic about smartphone demand in overseas markets when the epidemic is controlled.”Overseas markets are not OK. Millions of consumers around the world will be left without the ability to pay rent or buy food. Smartphones aren’t likely to remain on the must-have list.All told, more than 1 billion workers are at risk of a pay cut or losing their jobs, the International Labor Organization warns. In the space of just two weeks, the U.S. stunned economists with a record 10 million people filing for unemployment benefits. That may not seem like much in a world of 7.8 billion, yet America remains the world’s largest economy and each of those now jobless is a consumer who carries a lot more spending power than most global citizens. In China, it’s going to be difficult for even domestically focused enterprises to avoid any impact. While Xiaomi sounds optimistic, its biggest competitor is more cautious. Huawei Technologies Co., which gets more than half its revenue from handsets and mostly at home, recently told reporters that 2020 will be a challenging year but that it’s too early to make a forecast.Tencent Holdings Ltd. has a taken a pragmatic approach to preserving its bottom line as revenue declines: cutting costs. Still, every yuan it’s not spending on marketing is one not flowing to other internet and media companies that depend on advertising sales to run their businesses. The social-media and online-games company is confident it can offset any short-term weakness with a push into new services, like cloud computing.China’s coronavirus outbreak helped boost demand for Tencent’s enterprise products, part of a long-term trend, President Martin Lau told investors last month. While that may be true, it won’t help much if thousands of companies cut staff or even cease to operate.That’s a real possibility. Chinese gross domestic product growth could slow to 1.5% for 2020, pushing the labor market to its toughest situation in 20 years, Wang Tao, chief China economist for UBS AG, said in a note to clients this week. Instead of urban employment growing by 10 million annually as in recent years, the figure may decline by a few million. Downward pressure is likely to continue for China’s international trade, pushing exports down 12% for the full year, she wrote.China remains at the center of global technology manufacturing, and the outlook has deteriorated markedly. Researcher IDC Corp. just cut its 2020 forecast for global information technology spending growth to minus 2.7% from 5.1%. Beyond the drop in economic activity, many purchases will be delayed or cancelled purely due to the uncertainty surrounding the pandemic’s conclusion.Hon Hai Precision Industry Co. posted a 12% drop in first-quarter revenue. The Taiwanese company employs up to 1 million people in China to churn out smartphones, games consoles, servers and consumer electronics. If demand for gadgets like Apple Inc.’s iPhones falls, the need for those workers disappears, and with it their spending power. That same scenario will play out for auto workers, garment makers, and machinery operators.The flow-on effect from declining exports will be unavoidable. As my colleague Anjani Trivedi wrote last week, the country’s stimulus measures are paltry compared to what’s being meted out in the rest of the world.That means domestic consumer markets may not be a haven. Millions fewer people will have the disposable income to shop on Alibaba Group Holding Ltd.’s Taobao marketplace, or JD.com’s online outlets. They won’t be able to afford games or the products advertised on them, and many will need to tighten their belts when it comes to home delivery or eating out.Chinese technology companies have spent the last few months adjusting to consumers who are stuck spending their money from home. They’ll soon need to grapple with the reality of customers caught with no money to spend at all. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Apple Partner Foxconn to Start Making Ventilators in U.S.

    Apple Partner Foxconn to Start Making Ventilators in U.S.

    (Bloomberg) -- Foxconn, the company responsible for assembling most of the world’s Apple Inc. iPhones, will aid the fight against the coronavirus pandemic by developing and making ventilators in the U.S.The Wisconsin plant owned by Foxconn, also known as Hon Hai Precision Industry Co., will be used to manufacture ventilators, Medtronic Plc Chief Executive Officer Omar Ishrak told CNBC.Foxconn confirmed the partnership in a statement on Wednesday but did not say when it will start making the medical equipment. Evelyn Tsai, spokesperson for founder Terry Gou, said production would take place in Wisconsin and Taiwan.There has been a critical shortage of supply globally for ventilators needed in the treatment of severe cases of Covid-19. Foxconn’s collaboration with Medtronic covers design and development of the devices. Production will start within the next four to six weeks, Ishrak said, without quantifying a volume.Foxconn has been making face masks, used to curb the spread of the virus, in China since February and its subsidiary Sharp Corp. also began churning them out in Japan in late March.The company’s share price was up 5.3% in Taipei on Wednesday. It released better-than-anticipated March-quarter sales numbers on April 6.Fellow Taiwanese tech manufacturing supplier Kinpo Electronics Inc. also announced plans to begin producing coronavirus-fighting medical equipment in the U.S. starting in May.Foxconn’s contract for its Wisconsin plant was signed with great fanfare in late 2017. President Donald Trump, who had helped bring the deal together with the state’s then-governor, Republican Scott Walker, said Foxconn would revitalize U.S. manufacturing and that its massive factory hub would become “the Eighth Wonder of the World.”Since then, the plant-- which was originally intended for making display panels -- has been criticized for delays and changes of direction. The company missed its first-year hiring target by a wide margin, ending 2018 with 178 full-time employees.(Updates with details from founder’s spokesperson in third paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    Samsung's Symptom-Less Earnings Don't Make It Immune

    (Bloomberg Opinion) -- Earnings released early Tuesday by Samsung Electronics Co. show that the technology giant dodged any major impact from the Covid-19 pandemic. Expect that to change.Revenue growth was the strongest in six quarters, though 5% is hardly stellar. And while it was in line with estimates, analysts had been trimming expectations over the past few months. That also applies to the better-than-forecast operating profit, with analysts having lowered the bar in recent weeks.Investors should also note that earnings are reported in Korean won. Samsung’s numbers may have been helped by the fact that the won weakened 6.1% against the U.S. dollar in the quarter, the most in more than four years (the currency swung wildly during the period, so the company’s average exchange rate may have been different).With the coronavirus having shut down swathes of the global economy, any growth is to be lauded. Peers including Apple Inc. aren’t likely to have performed as well. But don’t be fooled into thinking that Samsung is in the clear. Much of the strength during the period probably came from its chip business, driven by the needs of internet companies like web-conferencing provider Zoom Video Communications Inc. These have had to boost server capacity to cope with higher demand from employees forced to work from home amid the pandemic.More than 40% of Samsung’s revenue comes from handsets. This sector was already looking lackluster before the coronavirus outbreak. Now, with the U.S. having reported an astonishing 10 million new jobless claims within two weeks, much of Europe on lockdown, and most of Asia in varying degrees of economic strife, it’s unlikely that consumers are eager to pony up for a flashy new smartphone.Apple’s largest supplier has already felt the pinch. On Monday, its Taiwanese assembler Hon Hai Precision Industry Co. announced first-quarter revenue dropped 12%. While Apple accounts for half of Hon Hai’s sales, the other half comes from a broad collection of companies including Dell Technologies Inc., HP Inc. and Xiaomi Corp. It’s unlikely any of them will come through this economic downturn unscathed.Samsung has the strength, and most importantly the cash, to ride out what will certainly be a tough few quarters for the global economy. That size doesn’t give it immunity.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    Foxconn Assures Investors 5G iPhone Can Still Launch This Fall

    (Bloomberg) -- Apple Inc.’s most important manufacturing partner has reassured investors it can still get the latest 5G-enabled iPhones ready for an autumn launch despite global Covid-19 upheaval.Hon Hai Precision Industry Co., which makes most of the world’s iPhones, told investors it’s lost time to travel restrictions and other disruptions caused by the coronavirus pandemic. But with months to go before the first trial assembly lines start up in June, Hon Hai can still make the deadline, investor relations chief Alex Yang said on a private conference call hosted by Goldman Sachs.Hon Hai, known also as Foxconn, struggled through much of February after the Covid-19 outbreak delayed the return of the hundreds of thousands of workers it needed to assemble iPhones and other electronics. While it’s since resumed normal operations, the month-long hiatus cast Apple’s carefully calibrated product launch schedule in doubt. Much now depends on the course of the pandemic and a postponement remained very much on the cards though the new iPhones should emerge in time to catch the crucial holiday season, Yang said.“We and the customer’s engineers are trying to catch up the missing gap, after we lost some days due to travel ban. There’s opportunity and possibility that we might catch up,” Yang said. “But if there’s a further delay in the next few weeks, months, then you probably have to reconsider launching time. It’s still possible.”Foxconn said in a statement Wednesday’s conference call was intended to communicate its thoughts on the latest developments affecting the consumer electronics industry and not focused on any specific products or customer.Read more: Apple’s Supply Chain Woes Linger Even as China RecoversThe next iteration of Apple’s signature device may well be one of its most important in years -- an iPhone that can make full use of the fifth-generation wireless networks that promise much faster video and gaming. The U.S. company is already a step behind Samsung Electronics Co. and Huawei Technologies Co., which began selling 5G devices last year.Covid-19 is now jeopardizing Apple’s plans. Mass assembly is only one part of the iPhone maker’s supply chain, which encompasses hundreds of suppliers. Apple and its many partners spend months or even years sourcing individual components that are assembled into final products. Any disruptions to that complex network could slow the introduction of future devices. Trial assembly typically begins in early June and -- once finalized -- mass production commences in August, Yang outlined.As China’s largest employer and manufacturer of a plethora of electronics brands, Hon Hai encapsulates how the outbreak disrupted the global supply of made-in-China electronics. Apple scrapped its revenue guidance for the March quarter after the contagion disrupted its production chain: 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 new workers and said it reached full seasonal staffing level earlier than an original target of late March.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • iPhone Maker Hon Hai’s Profit Slides Ahead of Virus Outbreak

    iPhone Maker Hon Hai’s Profit Slides Ahead of Virus Outbreak

    (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 SaysHon 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, analystsClick here for the research.Read more: Apple’s Supply Chain Woes Linger Even as China RecoversAs 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.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Coronavirus Is Expediting iPhone Makers' Plans to Move Beyond China

    Coronavirus Is Expediting iPhone Makers' Plans to Move Beyond China

    (Bloomberg) -- Wistron Corp., one of Apple’s manufacturing partners, said this week half its capacity could reside outside China within a year. The declaration underscored how the Asian assemblers that keep the world supplied with iPhones and other gadgets are shifting to a higher gear after the coronavirus showed the folly of staking everything on one country.The move in production out of China has been underway since the trade war between Washington and Beijing reached its zenith last year. Now, Covid-19 is expediting that. Decisions by companies like Wistron and other Apple Inc. partners including Hon Hai Precision Industry Co., Inventec Corp. and Pegatron Corp., could re-shape tech supply chains.Read more: Trump Tumult Has Gadget Giants Splitting Along U.S.-China LinesTaipei-listed Wistron is targeting India -- where it’s already making some iPhones -- along with Vietnam and Mexico, setting aside $1 billion to fund the expansion this year and next. “We understand from a lot of messages from our customers that they believe this is something we have to do,” Chairman Simon Lin said on an earnings call. “They’re happy and appreciate that we can continue to make such a move and they will continue to work with us.”IPhone assembler Pegatron is also diversifying manufacturing sites, including by adding capacity back home in Taiwan. Chief Executive Officer Liao Syh-jang said Thursday the company hopes to kick-start manufacturing operations in Vietnam in 2021 after setting up a new plant in Indonesia last year, and it’s further looking at India as a location for new facilities. It said on Friday it had agreed to purchase land and a plant in northern Taiwan.Apple’s main assembly partner for AirPods, Inventec, said Tuesday it’s preparing to establish a unit in Vietnam.More than any other assembler, Hon Hai encapsulated how the coronavirus brought the world’s No. 2 economy to a standstill. Better known as Foxconn, it augurs a potential shift in a global production paradigm that’s governed the electronics industry well over three decades. The company also has facilities in India, where it began churning out iPhones last year, and Vietnam. “Trade, the virus, all these things will make the world very different in the next decade,” Alex Yang, the company’s investors relations chief, told investors in a recent call.It’s unlikely that China will fully give up its place as the world’s electronics workshop anytime soon. That’s because it’s difficult to replicate the intricate network of suppliers, competent workers, efficient distribution systems and large home market that the country offers. Large-scale relocation of manufacturing capabilities would also take time. Apple CEO Tim Cook said in late February that the company wasn’t looking to make any quick moves out of China in light of virus-related supply-chain interruptions. “We’re talking about adjusting some knobs, not some sort of wholesale, fundamental change,” he said.Read more: Apple’s Cook Sees Minor Supply Chain Changes in Wake of VirusStill, the outward-bound trend is accelerating, especially among smaller-scale manufacturers. That extends to gadget makers serving customers other than Apple. Meiloon Industrial Co., which makes speakers and counts Harman International Industries Inc. and Xiaomi Corp. among its clients, said it’s seeking alternatives to China-based production and speeding up a move of capacity to places like Taiwan and Indonesia, spokesperson Eva Kuo said in a phone interview.The singularly trying experience of dealing with the outbreak in China will reverberate well after Covid-19 subsides, raising questions about the globalized business model of modern corporations. “It’s a wake-up call,” Joerg Wuttke, president of the European Union Chamber of Commerce in China, told Bloomberg Television last month. “China was a given, it was the perfect infrastructure for us to source and buy from there, and to sell. Now of course we have to reconsider scenarios, how to deal with China in the future.”(Updates with Pegatron’s facility investment in Taiwan in fourth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • iPhone Makers Suspend India Production Due to Lockdown

    iPhone Makers Suspend India Production Due to Lockdown

    (Bloomberg) -- Foxconn and Wistron Corp. have suspended all production at their Indian plants to comply with a nationwide lockdown ordered by Prime Minister Narendra Modi, hitting the output of Apple Inc. iPhones and other gadgets.Foxconn, also known as Hon Hai Precision Industry Co., is suspending operations until April 14, the company said in a text message to Bloomberg News. It intends to resume India production based on further government announcements. A Wistron representative said the company is also adhering to the order, while declining to comment on exactly what products are affected.Foxconn and Wistron are key manufacturing partners to many of the world’s largest electronics names. While neither company said which products have been affected, their Indian facilities mainly crank out older iPhone models or produce gadgets primarily aimed at the domestic market.Wistron’s Chairman Simon Lin said on an earnings call on Wednesday that he believes lockdowns in countries where the company operates, including India and Malaysia, will only be a “short-term” issue as Wistron doesn’t have labor-shortage problems there and production can be resumed quickly once restrictions are lifted.Still, the closures underscore how Modi’s surprise announcement of a 21-day lockdown -- the most far-reaching measure undertaken by any government to curb the coronavirus pandemic -- may affect the operations of global technology giants in one of the world’s fastest-growing markets for devices.India Locks Down 1.3 Billion People in Biggest Isolation EffortAn Apple representative didn’t provide immediate comment when contacted.Apple has only a sliver of India’s booming smartphone market because high prices and hefty import tariffs of as much as 20% put its products beyond the reach of average Indians. But the company views the country as important for longer-term growth. The Cupertino, California-based company has an office with thousands of employees in Hyderabad, working on Apple Maps data. They too are likely to be impacted by the government’s virus-fighting measures.(Updates with comments from Wistron executive in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Apple’s Supply Chain Woes Linger Even as China Recovers

    Apple’s Supply Chain Woes Linger Even as China Recovers

    (Bloomberg) -- Apple Inc. kept its business rolling through the coronavirus pandemic this week by launching a new iPad Pro and two new Macs. But that doesn’t mean its supply chain is in the clear.Deliveries of the new products will begin arriving on doorsteps next week. However, production of those devices likely started in early January, before the worst effects of China’s virus lockdown in February, according to people familiar with Apple’s supply chain.With a fresh round of supplier factory closures enforced by Malaysia, and the virus disrupting operations in much of the rest of the world, the iPhone maker’s supply chain has not fully recovered yet.Apple’s next flagship iPhones, with 5G wireless capabilities, are still on schedule to launch in the fall, although that’s partly because mass production isn’t due to begin until May, said the people. They asked not to be identified discussing private supply chain issues.“Even as China comes back on line, we are beginning to wonder if Covid-19 will impact other supply oriented geographies,” Brad Gastwirth, chief technology strategist at Wedbush Securities, wrote in a recent note to investors. “While China is improving, the supply chain for the electronics industry may yet see substantial disruptions.”An Apple spokesman declined to comment. Chief Executive Officer Tim Cook, the architect of the company’s China-focused supply chain, said Feb. 28 that production issues would be a “temporary condition.”Apple’s assembly factories in China, run mainly by Hon Hai Precision Industry Co., were in low gear for much of February. The manufacturing giant, also known as Foxconn, hopes to begin operating normally by the end of March.The February slowdown led to iPhone and AirPods supply constraints, but those have begun to subside. This week, Apple has been limiting iPhone purchases to two per customer on its online store in several countries. In early March, the company warned retail employees about shortages of replacement iPhones.One new product unveiled this week suggests there’s strain on Apple’s supply chain, but also shows the company can still mass produce gadgets given enough time. The keyboard accessory for the iPad Pro was announced Wednesday but goes on sale in May, an unusual delay.Read more: Supply Shock Is Wiping Out Hopes of Smartphone Sales GrowthMass assembly is only one part of Apple’s supply chain. The company and its many partners spend months or years sourcing individual components that are assembled into final products. Any disruptions in this complex network could slow the introduction of future devices.One person who works in Apple’s supply chain said not all operations are moving at normal speed because the flow of components to assemble is still slow. It will take another month or more to get parts moving steadily through the system, the person added.Jabil Inc., which makes iPhone casings, recently said its factories in China were “near normal,” while plants in other parts of the world were running 5% to 10% below capacity.“Most of that is due to supply chain issues. In some odd way, as we sit today, I think China is the least of our concerns,” CEO Mark Mondello told analysts during a March 13 conference call. “We’re able to accommodate all of the demand that’s in front of us as long as we can get parts.”A two-week lockdown in Malaysia is affecting several key suppliers that have operations in the country. Murata Manufacturing Co., Renesas Electronics Corp. and Ibiden Co., which make chips and circuit boards for Apple, have halted production there.Micron Technology Inc., which makes memory chips for Apple devices, is also impacted, but said an exemption allows “limited semiconductor operations to continue.” Texas Instruments Inc. and On Semiconductor Corp. have facilities in Malaysia, too.Apple has suppliers and operations in other countries that have been hammered by the virus, including Italy, Germany, the U.K. and South Korea.Samsung Display and LG Display Co. make iPhone screens in South Korea, while many Apple engineers working on cellular modems are based in Munich, Germany. Apple also operates former Dialog Semiconductor Plc facilities that work on power-management chips in Livorno, Italy, Nabern and Neuaubing, Germany, and Swindon, U.K.Apple has several hundred research and development engineers for future processors and underlying technologies in Israel, which is only letting citizens leave their homes for essential reasons, like buying food and medicine.Read more: Israel’s Netanyahu Orders Near Total LockdownIn the U.S., Apple has suppliers such as Corning Inc. for glass, and Qorvo Inc., Skyworks Solutions Inc. and Broadcom Inc. for wireless chips. Broadcom Chief Executive Officer Hock Tan said recently that the virus “is going to have an impact on our semiconductor business, in particular in the second half of the fiscal year.”Chips take months to make and test, and companies build up months of inventory. That means Apple and other device makers may not have seen the worst of the disruptions yet.The virus is likely challenging Apple’s ability to design and test early versions of future products in Silicon Valley, which is grappling with a shelter-in-place mandate. The company has instated a remote work order, save for some mission-critical employees, for all its offices outside of China.San Francisco’s Shelter-in-Place Order Shows U.S. What’s to ComeThese struggles have yet to severely derail the 5G iPhone launch in the fall. During China’s factory shutdown in February, Apple was able to build a limited number of test versions of the new models, one of the people familiar with the company’s supply chain said.Apple finalizes the majority of design features for new iPhones between November and December of the year prior to launch, the people said. It begins mass-producing new casings around April and then starts a late manufacturing stage called Final Assembly, Test and Pack in about May.Should Apple be unable to send full teams of engineers to China factories to finalize designs and resolve issues, this typical timeline could still slip, another person familiar with the company’s supply chain said.(Updates with Jabil comments in 12th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Apple’s iPhone Shipments to China Plunge 60% in February

    Apple’s iPhone Shipments to China Plunge 60% in February

    (Bloomberg) -- Apple Inc.’s iPhone shipments in China plunged more than 60% in February, when the coronavirus outbreak shut down scores of its stores and hampered key manufacturing partners across its largest international market.Shipments of Apple’s marquee device dropped to about 494,600 units from a year earlier, according to Bloomberg calculations based on monthly data from the China Academy of Information and Communications Technology, a government think-tank. Overall mobile phone shipments, including Android devices, slid 56% to 6.4 million units, the academy said. Those year-earlier comparisons were skewed by the fact that the Lunar New Year holidays fell in February of 2019, versus January this year.Since erupting in China in January, the Covid-19 epidemic has hit Apple’s supply and demand. Factories resumed work slower than expected and most of its 42 stores lay dormant for weeks, driving home the U.S. giant’s exposure to disruptions in the world’s No. 2 economy. While factories are gradually restarting after enforced quarantine, lingering production bottlenecks risk hurting global iPhone revenue in coming months.Apple has seen a “doomsday type” decline in iPhone sales out of China as a result of the coronavirus, though the impact should be short-lived, Wedbush analyst Daniel Ives wrote. But if the outbreak persists into the second quarter, it threatens to hold up the launch of Apple’s fifth-generation capable or 5G iPhones, expected toward the latter half of 2020, UBS analyst Timothy Arcuri wrote.What Bloomberg Intelligence SaysThe decline reflects postponed, not lost, purchases in our view and suggests Apple’s fiscal 2Q China sales may fall by $5.1-$5.6 billion vs. last year, per our analysis.\- John Butler and Boyoung Kim, analystsClick here for the research.Before Monday’s broad market sell-off, Apple had lost $167 billion of its market value since notching a 2020 peak, underscoring the anxiety around the impact of the global epidemic.Chief Executive Officer Tim Cook has called the outbreak a challenge. In the past few weeks, his company has warned retail employees about shortages of replacement iPhones, scrapped its quarterly revenue forecast and encouraged staff in Silicon Valley to work from home. It remains unclear how the epidemic will impact longer-term supply: Apple’s primary manufacturing partner, Hon Hai Precision Industry Co., has said its factories in China will be back to normal by the end of the month.Read more: Apple Slump Continues Amid Elevated Coronavirus Uncertainty\--With assistance from Allen Wan and Julia Fioretti.To contact Bloomberg News staff for this story: Gao Yuan in Beijing at ygao199@bloomberg.netTo contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Vlad SavovFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Infineon Deal Scrutiny Raises Trade Threat to Europe Tech Firms

    Infineon Deal Scrutiny Raises Trade Threat to Europe Tech Firms

    (Bloomberg) -- U.S. officials are dragging Europe’s technology industry more deeply into a trade war with China, threatening the region’s ability to create its own semiconductor giants.The Committee on Foreign Investment is urging President Trump to block Infineon Technologies AG’s $8.7 billion acquisition of Cypress Semiconductor Corp., claiming it poses a risk to national security, Bloomberg News first reported Thursday. Although it wasn’t clear what spooked Cfius, both Infineon and Cypress have Chinese customers including Huawei Technologies Co. Cfius is sensitive about deals allowing Chinese buyers to get their hands on advanced American technology.QuickTake: All About CFIUS, Trump’s Watchdog on China DealmakingEurope’s tech firms have tried to stay neutral in the power struggle. Semiconductor makers said earlier this year that they’d keep supplying Huawei after after a Trump’s administration order in May demanding U.S.-based companies stop. At the time a spokesman for Infineon said the majority of products it delivers to Huawei were not subject to U.S. restrictions.In recent months European lawmakers have pushed back against Trump’s calls to cut Huawei out of European telecom infrastructure. The U.K., France, and Germany are all looking to keep the door open to the Chinese telecom giant in some way, nubbing the U.S. view that Huawei could be a security risk. Italy, Croatia, Hungary and Switzerland have signed partnerships with Huawei.Huawei is Infineon’s sixth-largest customer accounting for about 2.4% of sales, according to supply chain data compiled by Bloomberg. Other Chinese buyers of Infineon products include iPhone-assembler Hon Hai Precision Industry Co. and Tencent Holdings Ltd.“Obviously national security considerations are very important,” said Keily Blair, Partner at law firm Orrick. “It would be good to see an evidence-based approach in the U.S., similar to what we have seen in the U.K. with Huawei.”In 2017, Cfius blocked Infineon’s proposed deal for Wolfspeed, a semiconductor unit of U.S.-based Cree Inc. Aixtron SE’s planned sale to a Chinese-backed company collapsed in 2016 after U.S. opposition. Trump has also blocked Broadcom Inc.’s hostile takeover of Qualcomm Inc.“We have always been less sure about the regulatory approvals than Infineon management,” said Citigroup Inc. analyst Amit Harchandani, “given the number of recent cross-border deals failing to clear the regulatory hurdle.”The U.S. is also trying to dictate who European firms do business with. Dutch chip gear-maker ASML Holding NV has had difficulty renewing an export license to China following U.S. political pressure. The company wants to sell equipment to China that would help the company produce its own next-generation chips and help it wean itself off foreign imports.In January, U.S. ambassador to the Netherlands Pete Hoekstra told Dutch newspaper Het Financieele Dagblad that ASML’s technology “doesn’t belong in certain places,” suggesting China. The Chinese ambassador, Xu Hong, had warned days earlier in the same paper that the relationship between the Netherlands and China was at risk if the government blocks EUV machine exports.Other European tech deals are now in focus. British chip designer Dialog Semiconductor is another key figure in the European tech supply chain with Chinese customers and American acquisition targets. In February, it said it’d agreed to buy Santa Clara, California-based Adesto Technologies Corp. for about $380 million.Dialog’s biggest customer is Apple Inc., but Huawei is its third-largest with an exposure of about 2.1%. Dialog CEO Jalal Bagherli declined to comment when contacted by Bloomberg on Friday.Although Cypress’s share price has collapsed following the report that Cfius is interested in the deal, some analysts believe all is not lost. “We believe mitigation conditions might still be an option and it would be premature to assume the deal is off,” said Citi’s Harchandani.“We believe worst-case we have a delay until the closing,” Vijay Rakesh, analyst at Mizuho Sescurites, said. A “potential delay or divestiture would be par for the course, but we see deal as mostly consummated.”\--With assistance from Nate Lanxon.To contact the reporters on this story: Giles Turner in London at gturner35@bloomberg.net;Sarah Syed in London at ssyed35@bloomberg.netTo contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net, Nate Lanxon, Amy ThomsonFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Here's a Contagion That Beijing May Be Able to Stop

    Here's a Contagion That Beijing May Be Able to Stop

    (Bloomberg Opinion) -- When a financial crisis erupted in the U.S. a little more than a decade ago, the impact rapidly spread to all corners of the globe and idled factories in far-distant China. Today, the Covid-19 outbreak has had a similar impact, with manufacturing brought to a halt from a disaster that started in China and escalated worldwide. One example is Hon Hai Precision Industry Co., the flagship of Taipei-based Foxconn Technology Group. Hurt before, it has been hit again.This time, though, Beijing may be able to halt the kind of financial contagion that spread through the sector. If Foxconn, the maker of Apple Inc. iPhones, Dell Technologies Inc. computers and Nintendo Co. games consoles, is any guide, then it’s possible the industry could make it through with few scars.The 2008 collapse of America’s sub-prime mortgage market hurt manufacturing because sources of cash dried up even in Asia. Beyond the drop in U.S. consumer demand, production in China ground to a halt as supply chain finance, the grease in the wheels of production, dried up when institutions cut back on lending or refused to extend existing funding.Suppliers who relied on letters of credit couldn’t pay for their components, and their customers in turn didn’t have cash available to pay for goods that had already been shipped, let alone order more. The well-oiled global industrial machine ground to a halt. The impact on Hon Hai was swift and brutal. Its current ratio — a measure of current assets as a proportion of current liabilities — immediately dived to a record low, while its Altman’s Z Score, which tracks the likelihood of bankruptcy, plunged into dangerous territory. Within a year, it posted a quarterly revenue drop of 11%, still a record. Its revenue decline this quarter is set to be even worse than back then.In investor relations calls Tuesday, Hon Hai noted that three of its four divisions — consumer, enterprise, and computing — would show revenue declines of at least 15%. Combined, they account for 95% of sales, which means total corporate revenue will likely fall at least 15%.Chairman Young Liu refused to rule out the possibility that Hon Hai may not even record a profit for the period.If companies in the supply chain make it through this crisis relatively intact, it may be largely thanks to the government of China, where Foxconn has the majority of its production. While its initial measures implemented to stop the spread of this coronavirus failed (new cases are being recorded daily, with the scale outside of China climbing rapidly), Beijing may actually be able to halt the financial contagion.As my colleague Anjani Trivedi wrote last month, Beijing is spewing handouts to get hard-up borrowers through the crisis.To make it happen, lenders have been allowed to avoid recognizing defaults that result from the coronavirus outbreak while the financial regulator has asked banks to be more lenient on bad loans and to reduce their profit targets. In other words: Forget these loans exist and don’t worry about making money.  Banks have taken Beijing’s requests to heart, Bloomberg News reported last week. Efforts to alleviate the pain include rolling over loans that seem may miss payments, allowing debtors to skip interest installments, and refraining from reporting delinquencies so that borrowers credit scores don’t get hit.It may be working. Foxconn’s Liu, for example, noted that local governments see economic growth as important as fighting the disease that threatens it. They’re prioritizing the reopening of some factories. That’s a big reason why the sprawling empire Liu oversees is likely to resume full production by the end of this month, from only 50% at the start and essentially zero output in February. Crucially, Foxconn won’t be alone in bearing the extra costs. Perhaps the most important assistance, which Liu pointed to, are those measures being taken by Beijing to ensure money keeps flowing. They’re sorely needed. A survey last month found that a third of Chinese small and medium-size enterprises had only enough cash to cover fixed expenses for a month, while another third could run out within two months. Foxconn is China’s largest private employer and largest exporter. It relies on thousands of suppliers to all be up and running, and as many as 1 million workers to turn up at its factories. Despite what’s likely to be a record decline in revenue this quarter, the company expects full-year sales to be impacted by as little as 1 percentage point.Pulling off a comeback like that could be proof that China does have contagion-control policies that work.To contact the author of this story: Tim Culpan at tculpan1@bloomberg.netTo contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • iPhone Maker Expects China Plants to Return to Normal in Coming Weeks

    iPhone Maker Expects China Plants to Return to Normal in Coming Weeks

    (Bloomberg) -- Hon Hai Precision Industry Co., Apple Inc.’s most important manufacturing partner, expects its Chinese plants to begin operating normally by the end of March after resolving severe labor shortages brought on by the coronavirus outbreak.The Taiwanese company, which assembles the majority of the world’s iPhones from China, joins a growing number of corporations envisaging a return to normalcy in the world’s No. 2 economy. Beijing has curbed the spread of an epidemic that erupted in January and forced millions to work from home, tangled up logistics and dented economic growth. Hon Hai said Tuesday its factories are now operating at about 50% of seasonal capacity but that should ramp up over the course of the month as workers stream back into its plants.Still, Chairman Young Liu warned it remained difficult to quantify the full impact of a weeks-long disruption, or gauge the effect on final demand for the swathe of consumer electronics it makes from laptops to game consoles. Business across all of Hon Hai’s four major divisions should decline in the March quarter compared with the previous year, meaning sales in the first half could end up being flat, Liu told investors and reporters on a conference call.“There’s not a huge hit on demand yet so far, but I dare not and don’t want to predict the outlook of the outbreak,” Liu said. “We don’t see a huge issue with our suppliers and we are helping them to secure resources.”Read more: Slow But Steady: China Fights to Get Economy Back to WorkAs China’s largest private employer and a key partner to many of the world’s most recognizable consumer brands, Hon Hai -- known also as Foxconn -- has become a symbol of how the outbreak could disrupt the global supply of made-in-China electronics. Apple scrapped its revenue guidance for the March quarter because of the work slowdowns and worsening demand, showing the outbreak was taking a bigger-than-predicted toll on one of the world’s most valuable companies.Foxconn has already slashed its 2020 revenue projections in the wake of the epidemic. The contagion has disrupted Apple’s carefully calibrated production chain: 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.Read more: Apple Outlook Cut Renews Questions About China Over-RelianceThe first quarter is typically a lull for Apple and Foxconn, because most iPhone sales occur over the holiday season. But Foxconn’s supply chain turmoil coincided with the envisioned launch of Apple’s cheaper iPhone SE2, slated for launch as early as this month. On Tuesday, Liu deflected questions about the gadget, saying only that Foxconn’s product research and development efforts were proceeding.Liu also said Foxconn was considering reducing its annual revenue outlook, confirming a Bloomberg News report. Hon Hai is projecting a sales increase of 1% to 3% this year, Liu told Bloomberg News in a text message last month. That’s down from a Jan. 22 forecast for 3% to 5% before the epidemic spread around the globe and lagged the average of analysts’ projections at the time. Analysts expect Hon Hai to post 4.9% topline growth in 2020.Still, Chinese companies have begun to return to work, heeding a call to safeguard economic growth -- though often not at full capacity. Hon Hai, which also makes products for companies from HP Inc. to Sony Corp., has said it is restarting facilities throughout China in an orderly manner. Other key tech and Apple suppliers with major Chinese operations, such as Quanta Computer Inc., Inventec Corp. and LG Display Co., are also gradually bringing their factories back online.“As of today, the production resumption has reached 50% of seasonal required capacity. Based on the current schedule, we shall be able to reach full seasonal capacity by the end of March,” Hon Hai said in a stock exchange filing. “There are still plenty of uncertainties which we cannot quantify around the potential impact on the full year.”Read more: Apple’s Cook Sees Minor Supply Chain Changes in Wake of VirusApple’s China-focused supply chain has faced two major tests -- first from trade tensions and more recently from manufacturing suspensions spurred by the spread of the coronavirus. China is also Apple’s biggest international market, and smartphone sales there are expected to take a big hit from the outbreak after government-imposed containment measures snarled logistics and closed stores.Research firms vary in their estimates of how big the shipments drop-off will be but agree it will hurt. Strategy Analytics forecasts a 32% decline in Chinese shipments in the first quarter, to 60 million from roughly 89 million shipments a year earlier. Canalys, starting from a similar estimate for 2019, scythes its expectations down to 42.5 million shipments.Read more: Virus Outbreak May Halve China Phone Shipments in First Quarter(Updates with executive’s comments from the third paragraph)\--With assistance from Adela Lin and Saritha Rai.To contact the reporters on this story: Debby Wu in Taipei at dwu278@bloomberg.net;Gao Yuan in Beijing at ygao199@bloomberg.netTo contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Edwin Chan, Colum MurphyFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Apple Outlook Cut Renews Questions About China Over-Reliance

    Apple Outlook Cut Renews Questions About China Over-Reliance

    (Bloomberg) -- For the second time in as many years, Apple Inc. has had to temper its sales outlook because of unexpected shifts in China, the country that’s served as the engine of its growth and success. First a trade war with the U.S. and now the outbreak of a novel coronavirus have called into question China’s role as a reliable market and supply chain partner for the world’s most valuable maker of consumer electronics.The coronavirus that’s stifled China’s meticulously orchestrated production and logistics has hit both Apple’s supply and demand -- factories are resuming work slower than expected, the company announced, and most of its 42 stores in the country lie dormant -- illustrating how heavily exposed its business is to disruptions in the world’s most populous country. A fall in sales within China is likely to be the most immediate impact this quarter, while widespread production bottlenecks there risk hurting global iPhone revenue in subsequent months.Amid its coronavirus troubles, Apple has been preparing to launch a new low-cost iPhone at around $400, Bloomberg News has reported. The model is still on track to launch in March, though the plans are still fluid, according to people familiar with the matter. Apple has also been preparing updated iPad Pro models with a new camera system for the first half of 2020 and the virus may yet impose delays or constraints on those plans.Apple Won’t Meet Quarterly Revenue Target Due to CoronavirusUpon joining the company in the late 1990s, Chief Executive Officer Tim Cook transformed Apple’s supply chain into the efficient juggernaut that’s been the longtime envy of the industry. Products are manufactured in China with the help of low-cost, but skilled, labor and shipped around the world in a matter of days. Relying on Taiwan’s Foxconn Technology Group to run on-the-ground operations and China’s abundant investment in transport to ensure logistics, Apple has become a trillion-dollar company largely by selling made-in-China iPhones, iPads, Macs and accessories.Responsible for millions of jobs in the country, Cook’s Apple has also garnered enough goodwill with the Chinese government to gain access to its market that is unmatched among U.S. tech heavyweights. Facebook Inc. and Alphabet Inc.’s Google are looking in from the outside, whereas Apple can sell all of its gadgets there. The Cupertino, California firm brings in more than $40 billion per year from Greater China, shy only of its takings from the U.S. and Europe. This strength is also the source of Apple’s vulnerability.On Monday, Apple cut its earnings guidance for the quarter ending Mar. 31, which was already wider than usual because of the unpredictability of the coronavirus fallout. U.S. stock index futures and shares in Apple suppliers from Japan to Hong Kong fell after the outlook warning kindled concerns about the damage the epidemic is causing global corporations and the Apple ecosystem. Last year, the company adjusted earnings because of a shortfall in iPhone demand in China, which it blamed in part on the ongoing trade war between Washington and Beijing.Production snarls at Apple’s main iPhone-making base of Zhengzhou may extend well into the June quarter and possibly beyond. Foxconn’s Hon Hai Precision Industry Co. only started seasonal recruitment on Monday, weeks behind schedule, and it’s been severely hindered by new policies intended to curb the spread of Covid-19 on campus. One recruiter, speaking on condition of anonymity, told Bloomberg News that the company was only hiring new workers from the local Zhengzhou area, tightening restrictions and eliminating the vast majority of available labor pool.Implementing a rolling quarantine of up to 14 days for returning workers from more distant provinces, Foxconn faces additional challenges in managing the movement of untold numbers of staff. In Shenzhen, as many as 10 workers are packed in each dorm room as they endure their assigned sequester period. The available beds are running short as a growing number of workers travel back, according to one person who helped arrange the program.‘Nightmare’ for Global Tech: Virus Fallout Is Just BeginningVirus contagion has shuttered plants across China for weeks longer than anticipated after the Lunar New Year break, and the nightmare scenario feared by Foxconn and its ilk is the infection spreading across factory floors, which could potentially freeze parts of the supply chain and trigger cascading shortages. Apple’s facilities have all reopened, said the U.S. firm, but evidence on the ground suggests they’re still far from fully operational.Existing iPhone inventories at retailers will soften the immediate blow of slower manufacturing, but analysts anticipate worldwide shortages will follow, extending the impact of the present disruption.“I expect we’re going to start seeing iPhone shortages outside of China, which plays into the guidance,” said Apple analyst Shannon Cross from Cross Research. “In theory, it shouldn’t be demand destructive. It should just mean there should be a larger backlog of demand when these issues are resolved.”The immediate reaction to Apple’s forecast cut has been a drag on Asian tech shares, especially those of suppliers to the company. But some impact on Apple was already widely anticipated.Tech Investors Jolted by Apple Pin Hopes on a Fast Turnaround“We’ve been getting nothing but headlines about the virus for weeks. Starbucks is closing its stores, Caterpillar is shutting its facilities. Company after company has been saying this,” Jim Paulsen, chief investment strategist at Leuthold Group, said by phone, expressing investor optimism for a fast turnaround. “We have been expecting bad sales headlines, this isn’t good, but it’s not surprising.” (Caterpillar closed its plants in China at the beginning of February at the direction of the Chinese government. It is re-opening them as the government allows; currently most are open.)Moving entirely out of China would be practically impossible for Apple in the short term, given the scale of its established network and the country’s incomparable ability to mobilize a workforce of millions. Similarly strong disruption threats to its supply chain arose in 2018 and 2019, largely spurred by trade war conflagrations, but Cook’s team has held steadfast in its commitment to the region and hasn’t shown any significant momentum toward a major move out.“Apple’s supply chain in China is so tight and large, it would be difficult to replicate outside the region,” Cross said. “I think you’ll continue to see small expansions into India, but the vast majority of production will remain in China.”Apple has indicated that its overall business is still strong, saying that it remained on track revenue-wise in regions outside of China for both products and services. The company is engaged in a long-term diversification shift that’s seen it pour billions of dollars into creating its own streaming content for Apple TV+ and building out subscription services like Apple Music and Apple Arcade. Its strongest step to reduce its China dependence to date has been this move to be less reliant on pure hardware sales for the bulk of its revenue.Addressing the wider smartphone industry in China, Strategy Analytics this month projected a significant hit to shipments in the first half of 2020, to be followed by a recovery and a slight increase in shipments in the closing months of the year. If Apple follows a similar trajectory, it could see iPhone demand shift into later quarters rather than vanishing entirely.“I think Apple remains in a very good position long-term,” Cross said. “I would assume there would be some pressure on the stock, but assuming this is a short term bump in the road, investors will look through it.”(Updates with comment from Caterpillar in 13th paragraph.)\--With assistance from Joe Deaux.To contact the reporters on this story: Mark Gurman in Los Angeles at mgurman1@bloomberg.net;Debby Wu in Taipei at dwu278@bloomberg.net;Gao Yuan in Beijing at ygao199@bloomberg.netTo contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net, Vlad Savov, Edwin ChanFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Apple's Virus Cut Puts All Eyes on Tech Bellwether

    Apple's Virus Cut Puts All Eyes on Tech Bellwether

    (Bloomberg Opinion) -- Apple Inc. has thrown out its March-quarter revenue guidance three weeks after providing it.Despite factoring in possible downside from the China coronavirus outbreak in its original forecast, the iPhone maker realized that things have deteriorated much more than it had anticipated. It gave no new figure and merely said the old one no longer applies, an admission that the company really can’t quantify the impact.While we should expect similar downbeat tones through the rest of the sector, this really means we should keep tabs on the one company that sits at the heart of the global technology supply chain: Taiwan Semiconductor Manufacturing Co.Apple is TSMC’s largest customer. When the chipmaker gave its own first-quarter and full-year forecasts Jan. 16, the world had barely heard of the disease now riveting its attention.Since then, Apple has shut stores in China and downstream assemblers like Hon Hai Precision Industry Co. have struggled to ramp up production after the Lunar New Year break amid continuing quarantines and a shortage of workers willing to return to the factory floor.Nvidia Corp., which designs graphics chips, is another major client of TSMC. On Feb. 13, it said the virus had cut its forecast by $100 million. That’s only around 3% of expected revenue for the quarter, but it all eventually adds up. Alibaba Group Holding Ltd., not a direct customer, forecast a decline in revenue from its core businesses as consumers on its e-commerce platform shy away from spending. At least some of those lost sales will be electronics products, which use chips made by TSMC.Chinese companies, including Huawei Technologies Co., accounted for 20% of TSMC’s revenue last year. With numerous enterprises in China on lockdown, adding to the squeeze on both demand and production, it’s unlikely such clients will be able to escape the impact.And last week, wireless industry association GSMA scrapped its annual Mobile World Congress scheduled for Feb. 24 in Barcelona because most of its major participants had already pulled out. This isn’t a consumer event, but the cancellation shows the breadth and reach of the outbreak’s impact on business. Whichever way you look at it, the global tech slowdown leads back to TSMC. Revising guidance mid-quarter isn’t without precedent, and TSMC usually does with a statement filed mid-afternoon Taipei time. It did so a year ago this week, cutting its sales and profit outlook after facing troubles with chemicals used in the manufacturing process. The result was a 10% reduction in operating profit. Just a few months before that, a production hiccup caused by a computer virus in its equipment hurt gross profit by around 5%. An earthquake four years ago sliced operating income by about 7%. The biggest mid-quarter guidance cut I could find is the 25% hit to operating profit that it took in December 2008 as the financial crisis brought the world economy to a halt.To be sure, it’s not certain that a cut will be necessary this time. Clients may decide that they want to keep building up inventory of the chips that come out of TSMC’s factories. But at some point, end-demand may dictate a more cautious approach to procurement. This epidemic is proving hard to quantify, so TSMC’s biggest challenge may not be whether to revise guidance, but what new number to give. To contact the author of this story: Tim Culpan at tculpan1@bloomberg.netTo contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    Coronavirus Stokes Mask Production and Mass Confusion

    (Bloomberg Opinion) -- For factories to reopen, people to get back to work and the coronavirus to stop spreading, China needs tens of millions of face masks each day. And yet the country’s sprawling bureaucracy is sending out mixed messages about its ability to provide them. The repercussions have been felt even in Hong Kong, where throngs of panicked shoppers cleared the shelves of masks and, more perplexingly, toilet paper last week.The world’s biggest mask producer is facing a severe shortage. Even running at full capacity, China can make only 20 million a day, nowhere close to meeting the needs of the 776 million who are slowly returning to work. As for prized surgical and N95 masks (which provide even more coverage), China can produce only about 2.2 million and 600,000 daily. The country has roughly 12 million medical professionals.In the last week of January, China had to purchase more than 56 million masks from overseas, the government said. Apple supplier Hon Hai Precision Industry Co. took matters into its own hands when it started to make masks for employees at its flagship factory in Shenzhen. Once again, China’s bureaucrats have proven their incompetence, starting with the government of Hubei province, whose slow response accelerated the viral spread in the first place.Even under lockdown, Hubei of all provinces shouldn’t be this short of protective medical gear. Xiantao, a provincial city there, is a major industrial hub for the non-woven products used in surgical masks. But last week, local officials told producers that unless their goods have been cleared for sale within China, factories can’t reopen until Feb. 14. This has created a social uproar. Many of these masks aren’t cleared for sale in the mainland because they’re exported. These businesses often lack domestic licenses precisely for this reason. Within days, the provincial government had to reverse course, because the proposed regulation would have shut downroughly half of Xiantao’s production capacity. In the manufacturing hub of Guangdong, meanwhile, officials went into overdrive, encouraging local businesses to switch to mask production by offering generous subsidies. Companies that purchased production lines and got online by Feb. 7 received as much as 80% in rebates from the government; those meeting a Feb. 20 deadline can have up to half of their equipment costs paid for. It's no surprise that companies are now making masks, including automakers such as BYD Co. and Guangzhou Automobile Group Co. But this shift has stoked its own form of panic. When China's fourth-largest tissue-paper brand, Guangdong-based C&S Paper Co., said it purchased five production lines with a daily capacity of about 350,000 masks, speculation was rife on social media about possible disruption to the paper-goods supply chain. This helps explain why Hong Kong had a toilet-paper run last week: The likes of C&S might just be too busy making surgical masks.Judging by how well the stock market is doing, it seems global investors have learned to forgive China. Many have argued that, of all countries, China with its centralized command system can weather this epidemic better than others.The reality is a lot murkier. We have one province so bogged down by licensing issues that its much-needed factories are lying fallow; another whose overly generous subsidies could be providing the wrong incentives and inadvertently stoking consumer panic. As it turns out, China’s bureaucracy is a lot less efficient than we imagined. Don’t be surprised if we see a diaper run, too. Even those manufacturers have switched to making masks.  To contact the author of this story: Shuli Ren at sren38@bloomberg.netTo contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Reuters - UK Focus

    WRAPUP 11-WHO brands coronavirus "public enemy number one"

    GUANGZHOU, China/GENEVA, Feb 11 (Reuters) - The coronavirus outbreak in China may be over by April, the country's senior medical adviser said on Tuesday, but deaths surpassed 1,000 and the World Health Organization (WHO) warned of a global threat potentially worse than terrorism. The world must "wake up and consider this enemy virus as public enemy number one," WHO chief Tedros Adhanom Ghebreyesus told reporters. As the epidemic squeezed the world's second-biggest economy, Chinese firms struggled to get back to work after the extended Lunar New Year holiday, hundreds of them saying they would need loans running into billions of dollars to stay afloat.

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