Apple iPhone maker Foxconn’s profit gutted by smartphone slump

Apple Inc.’s most important manufacturing partner recorded an 89% decline in net income to NT$2.1 billion in the first three months of 2020.

| Updated on: May 16 2020, 01:05 IST
Apple iPhone
Apple iPhone (Pixabay)
Apple iPhone
Apple iPhone (Pixabay)

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.

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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 says

Hon 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, analyst

Revenue 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.

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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.

Written by Debby Wu.

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First Published Date: 16 May, 01:05 IST