Apple supplier Foxconn is forecasting a difficult quarter given weak demand and rising inflation in China

Apple supplier Foxconn warned that current-quarter revenue for its electronics business, including smartphones, could fall as growth slows amid rising inflation and slowing demand in lockdown China and escalating supply chain problems.

The Taiwanese company, the world’s largest contract electronics manufacturer, has been struggling with a serious chip shortage like other global manufacturers, which has hampered smartphone production, including for its key customer Apple.

While the company reiterated that China’s COVID-19 controls have had a limited impact on its production as it kept local workers in a “closed-loop” system, demand for its products in the country has suffered since people remain trapped The slowdown has recently been exacerbated by a downturn in key markets due to high inflation and the war in Ukraine.

The predictions reiterate the urgency for Foxconn to reduce its reliance on smartphones and consumer electronics, which account for just over half of its total revenue, and to diversify into areas such as electric vehicle (EV) manufacturing, which value it at $34 billion (approx Rs. 2,63,316 crore) business by 2025.

“There’s a lot of uncertainty in the market right now,” Foxconn chairman Liu Young-way said in a post-earnings call, citing the pandemic, geopolitical risks and inflation for the year.

“They pose some challenges to demand and supply.”

The slight decline in consumer electronics revenue estimated for the second quarter was due to a higher base last year and ahead of new product launches later this year, he said.

The company, officially named Hon Hai Precision Industry Co Ltd, expects total sales to be flat for the current quarter and full year. It didn’t provide a numerical outlook but forecast strong growth for its other businesses such as Components, Computing Products, and Cloud & Networking Products.

In the first quarter that ended in March, Foxconn’s revenue rose 4 percent. Net profit rose 5 percent to TWD29.45 crore (about Rs.7,641 crore) according to Refinitiv, broadly in line with an average analyst estimate of TWD29.76 crore (about Rs.7,721 crore).

On cars, Foxconn said it will develop new vehicles with struggling US electric vehicle maker Lordstown Motors. On Wednesday, the Taiwanese company announced it had struck a deal to buy a factory in Lordstown, Ohio for US$230 million (around Rs.1,781 billion).

The two companies will also set up a joint venture to manufacture vehicles, with Lordstown owning a 45 percent stake and Foxconn owning the remainder.

Foxconn shares closed 1 percent lower ahead of the earnings release, versus a 2.4 percent decline in the broader market. They’re down about 2 percent so far this year, giving the company a market value of $48.1 billion.

© Thomson Reuters 2022 Apple supplier Foxconn is forecasting a difficult quarter given weak demand and rising inflation in China

Ryan Sederquist

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