Apple supplier Foxconn adjusts production to avoid Christmas slump

Apple supplier Foxconn adjusts production to avoid Christmas slump

By Ben Blanchard and Sarah Wu

TAIPEI (Reuters) – Apple Inc supplier Foxconn said on Thursday it expected smartphone revenue to fall this quarter and was adjusting production to prevent recent COVID-19 restrictions at a huge iPhone factory from in China affect year-end orders.

Foxconn has made headlines in recent weeks, with tight virus restrictions at its Zhengzhou plant, the world’s largest iPhone factory, halting production and fueling concerns about the impact of China’s virus policy on chains. global supply. The plant in China’s industrial hub employs about 200,000 people.

Speaking on an earnings call, chairman Liu Young-way said the Christmas and Lunar New Year holidays are “very important.”

“We will definitely do our best to adjust our production capacity and throughput so that there is no impact on demand for these two holidays,” Liu said. He did not give details.

The cost impact of COVID controls, including the bonus offer to retain workers, will be short-term and Foxconn has been working with the government to resume normal production as soon as possible, it added.

On Wednesday, Foxconn said it would continue production at Zhengzhou under a “closed-loop” system, where staff live and work on site in a bubble cut off from the rest of the world.

Many employees have fled the factory due to rigid controls that have limited the movement of people and have been forced to comply with quarantine, with stories of food and medicine shortages circulating on social media.

If the outages persist, it could hamper Foxconn’s ability to ship iPhones in what is traditionally the peak season for Taiwanese tech companies as they scramble to supply cellphones and other electronics for the year-end holiday period. in Western markets, followed by the Lunar New Year in the East. Asia.

Asked if customers are pushing for production to be distributed to other Chinese cities or outside of China, Liu said geopolitics are more likely to play a role in restructuring Foxconn’s production footprint than the pandemic.

“Of course there may be other factors that require the reconfiguration of production capacity, such as geopolitics,” Liu said.

COVID DARK OUTLOOK

The Taiwanese company, formally called Hon Hai Precision Industry Co Ltd, said net profit for the July-September quarter rose 5% to T$38.8bn from T$36.98bn a year earlier.

Eleven analysts had expected an average profit of C$41.3 billion, according to Refinitiv.

Having said on Monday that it would “revise downward” its outlook for the fourth quarter given the situation in Zhengzhou, Foxconn said revenue in the last three months of this year would be flat. He had a relatively conservative outlook for 2023.

Foxconn said it expects a slight decline in fourth-quarter revenue year-over-year for its smart consumer electronics business, which includes smartphones, and significant growth for network and cloud products.

It also forecast strong fourth-quarter revenue growth in computer products, including laptops.

Shares of Foxconn, which has a market value of $43.6 billion, closed down 2% before the earnings release, trailing the broader market by 1%.

Foxconn’s disappointing earnings come at a time when investors are concerned about slowing demand for technology due to high inflation and escalating global supply chain problems due in part to China’s COVID policy. , with no clear exit strategy in sight.

Apple Inc. has also fallen victim to China’s strict COVID policy, as Foxconn accounts for 70% of global iPhone shipments, and the California-based supplier this week lowered its forecast for shipments of premium models. of iPhone 14.

One-off closures and business interruptions have highlighted the risks facing businesses in China, with global firms including Canada Goose Holdings Inc and Estee Lauder Companies Inc closing local stores and cutting forecasts.

In some cases, just a handful of cases have triggered citywide shutdowns, which have had a huge impact on business activity and consumer confidence.

Reuters reported last month that Foxconn’s production of Apple’s iPhones at the Zhengzhou factory could drop by as much as 30% in November due to tight COVID-19 restrictions.

(Reporting by Ben Blanchard and Sarah Wu; Editing by Anne Marie Roantree, Christopher Cushing, and Ana Nicolaci da Costa)

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