iPhone-maker expects China plants to run normal capacity in coming weeks

The Taiwanese company, which assembles the majority of the world’s iPhones from China, said Tuesday its factories are now operating at about 50% of seasonal capacity but that should ramp up over the course of the month.

The Taiwanese company, which assembles the majority of the world’s iPhones from China, said Tuesday its factories are now operating at about 50% of seasonal capacity but that should ramp up over the course of the month. (REUTERS)

Hon Hai Precision Industry, Apple's most important manufacturing partner, expects its Chinese plants to run at normal capacity by the end of March despite lingering uncertainty around the coronavirus outbreak.

The Taiwanese company, which assembles the majority of the world's iPhones from China, said Tuesday its factories are now operating at about 50% of seasonal capacity but that should ramp up over the course of the month. It warned however that it still can't quantify the impact of a weeks-long work slowdown spurred by labor shortages and nationwide transport tangles.

Hon Hai Chairman Young Liu and Chief Financial Officer David Huang are slated to brief investors and media about the company's first-quarter operations later on Tuesday. Their company has already slashed its 2020 revenue projections in the wake of the epidemic, which is hurting smartphone demand and denting global economic growth. 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.

"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."

As 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 work slowdowns and worsening demand, showing the outbreak was taking a bigger-than-predicted toll on one of the world's most valuable companies.

The first quarter is typically a lull period for Apple and Foxconn, because most iPhone sales occur in the holiday quarter.

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. Hon Hai is still expected 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 to Sony, 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, Inventec and LG Display, are also gradually bringing their factories back online.

Apple'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 emptied out 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.