Pandemic Drives Foxconn Profits Down Nearly 90 Percent

The Tap Economy Part 1: Screen Commerce

iPhone manufacturer Foxconn sees profits slump after shuttering China plants for weeks, but expects double-digit revenue jump as restrictions ease

Electronics manufacturer Foxconn, best known for assembling Apple’s iPhones, has reported profits down nearly 90 percent for the first quarter, as the coronavirus pandemic disrupted supply chains worldwide.

The company, which is the world’s largest contract manufacturer and is Apple’s biggest single supplier, reported profits down 89 percent for the first three months of 2020 compared with the same quarter a year earlier, to NT$2.1 billion (£58m) from NT$19.83bn, the company, formally known as Hon Hai Precision, said on Friday.  Revenue fell 12 percent to NT$929.13bn, beating analysts’ estimates.

Foxconn chairman Young-Way Liu said revenue for the April-June quarter was expected to fall by a single digit year-on-year, but declined to offer a full-year forecast.

“The visibility of our outlook for the whole year is limited,” Liu said in a conference call with analysts.

Foxconn factory Shenzhen China 2005 - by Steve Jurvetson from Wikimedia
A Foxconn factory in Shenzhen, China. Image credit: Steve Jurvetson

Plants shuttered

Foxconn shuttered production plants in China for several weeks in January and February, including its plant in Zhengzhou in central China, the world’s biggest iPhone factory, but most of its Chinese facilities have now reopened, Liu said.

He said the company’s plants in India are to reopen when the company lifts its lockdown on 17 May, while operations have returned to normal in areas such as Southeast Asia.  Foxconn also has plants in Brazil, the Czech Republic, Mexico, the US, Vietnam and elsewhere.

“Things were not normal in February and early March,” Liu said.

Liu said the company had spent about NT$10bn on wages for its China-based labour force while production was halted, lowering Foxconn’s gross margin for the quarter by 1 percent to 4.5 percent, but added that this would return to normal in the second quarter.

Foxconn said it expects a double-digit revenue rebound in the current quarter, based on demand for technologies needed for working from home and home entertainment goods.

The company said its computing segment would rise by 15 percent year-on-year in the three months to June, while revenue from enterprise products and electronics components would rise by about 10 percent.

Smartphone demand

But the smartphone segment, Foxconn’s largest business, is expected to drop by another 15 percent amidst a wider expected drop in demand for consumer products.

“In early March, our outlook was guided by the supply problems. Since late March, we have seen a huge demand shock,” Liu said.

Demand for laptops is likely to fall off as the pandemic eases, Foxconn said, but it said it expects the market for cloud computing equipment to remain strong.

The company’s results are the latest to underscore the world electronics supply chain’s dependence upon China, something the current US administration, in particular, has been trying to diminish by encouraging companies to create more domestic manufacturing capacity.

This drive led Foxconn competitor TSMC to announce last week plans to build a $12bn (£9bn) chip plant in Arizona.

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