Nov 15, 2018 09:17 AM

Foxconn Outlook Dims as Apple Sales Slow

Slowing sales of iPhones drag down suppliers’ business outlook. Photo: VCG
Slowing sales of iPhones drag down suppliers’ business outlook. Photo: VCG

Analysts project slower business for Foxconn after the iPhone maker posted weaker-than-expected third-quarter earnings, reflecting slowing sales to its major manufacturing partner Apple Inc.

Analysts warned of declining shipments in coming quarters for Foxconn, an electronics manufacturer whose biggest customer is Apple. The Japanese investment bank Nomura said the company will crank out 11% fewer iPhones in 2019.

Foxconn, formally known as Hon Hai Precision Industry Co. Ltd., joined several Apple suppliers in getting downgrades from financial institutions amid rising concerns over cooling demand for Apple products.

Foxconn said late Tuesday its third-quarter net profit rose 18% from a year earlier to NT$24.9 billion (US$806 million). Revenue gained 28% to TN$1.38 trillion.

Foxconn’s shares closed down 1.5% Wednesday in Taiwan.

Although this was the company’s best quarterly profit performance of 2018, it was 12% shy of analysts’ estimates. Analysts surveyed by Refinitiv expected the company’s profit to reach NT$28.26 billion, according to Reuters.

Analysts attributed Foxconn’s weaker performance to sluggish Apple sales, which contribute more than half of Foxconn’s revenue and net profit.

The third-quarter earnings of Apple suppliers receive considerable attention as they always follow Apple’s new-product releases in September. This year, Apple released three new iPhones, including the most expensive iPhoneXS Max.

However, high prices have dented demand.

Earlier this month, Apple posted lower-than-expected sales growth for iPhones, especially the newly released iPhone XS models. Apple sold 46.9 million iPhones during the fiscal fourth quarter ended Sept. 29, up just 0.5% from the same quarter last year and short of analysts’ prediction of 47 million to 49 million. Meanwhile, iPad unit sales were 9.7 million, down 6% year-on-year. Mac computer sales amounted to 5.3 million units, down 2%.

Apple’s fourth-quarter net income was $14.1 billion, up 32% from the same period in 2017. Revenue rose 20% to $62.9 billion. The stock plunged on the news and has lost 7% this month as of Tuesday.

Apple CFO Luca Maestri said unit sales can't represent Apple's business strength.

“Our product ranges for all the major product categories have become wider over time and therefore, a unit of sales is less relevant for us at this point compared to the past,” Maestri told analysts during the earnings call.

But analysts said that while Apple can secure profit gains through price increases, suppliers are increasingly squeezed by slowing unit sales.

Multiple international media reported that Apple recently cut orders to suppliers. Nikkei’s Chinese-language website reported that two of Apple’s major suppliers, Foxconn and Pegatron, were told in early November to suspend plans for adding new production lines for the iPhone XR, a cheaper version of the latest models.

Foxconn is a key assembler of the iPhone XR model. The report said Foxconn had initially prepared 60 assembly lines for iPhone XR but was using only 45 of them because of lower demand. Foxconn declined to comment.

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