Picture: REUTERS/TYRONE SIU
Picture: REUTERS/TYRONE SIU

Taipei — Hon Hai Precision Industry’s quarterly profit fell 24% after tepid smartphone demand and US-Chinese tensions depressed sales ahead of the coronavirus outbreak.

Apple’s most important manufacturing partner posted net income of NT$47.8bn  ($1.58bn) in the October-December period, based on calculations by Bloomberg News off information Hon Hai has submitted to the local stock exchange. That is  down from NT$62.2bn in the same quarter of 2018.

Hon Hai, which gets half its revenue from making iPhones and other devices for Apple in China, grappled with rising US tariffs on its goods even before Covid-19 smothered demand for electronics. Known also as Foxconn, the company has said it’s resolved labour shortages and is now back at normal seasonal capacity.

But it remains to be seen how it fared during the about-to-end March quarter, when the outbreak was declared a pandemic and government lockdowns dealt unprecedented shocks to the global supply chain.

Signs are that Apple’s Chinese-centric manufacturing — of which Hon Hai is the linchpin — is slowly getting back on track. The next iPhones with 5G wireless capabilities remain on schedule to launch in the fall, partly because mass production is not slated to begin until the summer, people familiar with matter have said.

Yet the sort of assembly that Foxconn specialises in is but one part of Apple’s supply chain: the US company and its partners spend months or even years sourcing components about the world and any disruptions to that complex network could delay future devices.

Bloomberg Intelligence analysts Matthew Kanterman and Charles Shum said: “Hon Hai’s sales pressure from the global coronavirus spread, the US-China trade dispute, smartphone-market weakness and a broader slowdown in tech spending won’t abate quickly, even as its Chinese manufacturing gets back to full seasonal capacity.

“The world’s largest electronics manufacturing-services provider is investing heavily in automation to reduce costs and improve asset efficiency. Hon Hai has an opportunity to capitalise on the rise of industrial internet-of-things deployment and vehicle electrification, which will develop in the next 3-5 years and provide meaningful sales growth opportunities.”

Largest private employer

As China’s largest private employer and a key partner to many of the world’s most recognisable consumer brands, Hon Hai has become a symbol of how the outbreak could disrupt the global supply of made-in-China electronics.

Apple withdrew its forecast for the current quarter as contagion disrupted its carefully calibrated production chain.

Hon Hai was forced to postpone the reopening of its “iPhone City” megacomplex in the central city of Zhengzhou while it imposed strict quarantine measures on thousands of labourers. But Foxconn has since sharply raised signing bonuses to attract the new workers it needs to assemble its products.

The Taiwanese company is now diversifying away from its main Chinese production base to mitigate the affect of disruptions. It’s spending more than NT$17bn building factories in India and Vietnam, responding to customers’ needs, CFO  David Huang said at an earnings conference in 2019. Those two countries will become regional manufacturing hubs, he said.

Bloomberg