Foxconn to Adjust Production to Avoid Impact on Holiday Demand
Apple supplier Foxconn said on Thursday it expects smartphone revenue to fall this quarter and is adjusting production to prevent the latest COVID-19 curbs at a major iPhone factory in China from affecting holiday orders.
Foxconn has grabbed headlines in recent weeks, with strict virus restrictions at its Zhengzhou plant, the world’s largest iPhone factory, disrupting production and concerns over the impact of China’s virus policy on global supply chains. The industry in China’s industrial zone employs about 200,000 people.
Speaking on a conference call, Chairman Liu Young-way said the Christmas and New Year holidays are “very important.”
“We will definitely try our best to adjust our production capacity and output, so there is no impact on demand for these two holidays,” Liu said. He did not provide details.
The impact of the cost of controlling the COVID, including providing employee retention bonuses, will be short-term and Foxconn was working with the government to resume normal production as soon as possible, he added.
On Wednesday, Foxconn said it would continue production in Zhengzhou under a “closed-loop” system, where workers live and work on site in a bubble isolated from the rest of the world.
Many workers have fled the factory due to strict controls that have restricted people’s movement and witnessed forced isolation, with stories of food shortages and medical shortages circulating on social media.
If the disruption continues, it could hamper Foxconn’s ability to ship iPhones during what is normally a high season for Taiwanese tech companies as they rush to supply cellphones and other electronics during the year-end holidays in Western markets followed by the Lunar New Year in the East. In Asia.
When asked if customers want the product to be distributed in other cities in China or outside of China, Liu said that geopolitics is more likely to play a role in Foxconn’s production restructuring than the pandemic.
“Of course, there may be other factors that need to be restructured in terms of production capacity, such as geopolitics,” Liu said.
Covid is clouding the vision
The Taiwanese company, officially Hon Hai Precision Industry Company, said net profit for the July-September quarter rose 5 percent to TWD 38.8 billion (about Rs. 9,956 crore) from TWD 36.98 billion (about Rs. -Rs. 9,488 crore) last year.
Eleven analysts were expecting an average profit of TWD 41.3 billion (about Rs. 10,600), according to Refinitiv.
Having said on Monday that it would “revise” its outlook for the fourth quarter in light of the situation in Zhengzhou, Foxconn said earnings in the final three months of this year would be negative. It had a moderate 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 in cloud and networking products.
It also forecasts strong fourth-quarter revenue growth in computer products, which include laptops.
Shares of Foxconn, which has a market value of $43.6 billion (about Rs. 3.6 lakh crore), closed up 2 percent before the earnings release, offsetting a 1 percent decline in the broader market.
Foxconn’s disappointing earnings come at a time when investors are worried about shrinking demand for technology due to inflation and increasing global procurement problems due in part to China’s COVID-19 policy, with no clear exit strategy.
Apple has also been a victim of China’s strict COVID policy as Foxconn accounts for 70 percent of global iPhone shipments, with the California-based retailer this week lowering its forecast for shipments of the flagship iPhone 14 models.
The closures and business disruptions have highlighted the risks companies face in China, with global companies including Canada Goose Holdings Inc and Estee Lauder Companies Inc closing local stores and cutting forecasts.
In some cases, just a few cases have resulted in the shutdown of an entire city, causing significant damage to business activity and consumer confidence.
Reuters reported last month that Foxconn’s production of Apple’s iPhones at its Zhengzhou factory could drop by 30 percent in November due to strict COVID-19 restrictions.
© Thomson Reuters 2022