IPhone Maker Hon Hai Cuts Outlook After Mobile Demand Sags

Hon Hai Precision Industry Co. now expects 2023 sales to fall after previously forecasting flat revenue, sounding a warning about demand for the devices it makes for Apple Inc. and other global firms.

(Bloomberg) — Hon Hai Precision Industry Co. now expects 2023 sales to fall after previously forecasting flat revenue, sounding a warning about demand for the devices it makes for Apple Inc. and other global firms.

The Taiwanese company now expects most of its main business segments, including smartphones, to contract “slightly” this quarter and over the entire year, as global economic malaise depresses consumer spending on electronics. It reported a larger-than-expected 30% slide in operating income to NT$30.9 billion ($968 million) for the June quarter. 

Hon Hai’s results underscore a worsening market for global electronics, as consumers and corporations hold off on spending during a downturn. From Apple to Qualcomm Inc. and Taiwan Semiconductor Manufacturing Co., the industry’s bellwethers have warned that a downturn that set in after the pandemic may last longer than anticipated.

Apple, Hon Hai’s top customer, in August telegraphed its longest sales slump in decades, the result of crumbling demand for phones, computers and tablets worldwide. China, the world’s biggest market for those devices, is mired in an economic funk that some economists say may worsen over time.

Read more: IPhone Maker Foxconn Spends $1.2 Billion in Shift From China

Apple is asking suppliers to produce about 85 million units of the iPhone 15 this year, roughly in line with the year before, Bloomberg News has reported. That should hold shipments steady despite tumult in the global economy and a projected decline in the overall smartphone market. But the move is likely to increase revenue because Apple is considering raising the price for Pro models.

Hon Hai on Monday reported net income of NT$33 billion, surpassing the NT$25.9 billion average of analyst estimates partly because of gains from sales of real estate, among other items. It earlier posted a 14% decline in revenue for the period, its first drop since the final three months of 2021.

“iPhone shipment from Foxconn in the fourth quarter and next year’s first quarter will be lower than they were a year earlier, due to weak demand from multiple key markets such as the US, China and Japan, and the order shifting towards vendors such as Luxshare,” Counterpoint Research analyst Ivan Lam said.

What Bloomberg Intelligence Says

Hon Hai’s revenue could be affected by muted iPhone growth in 2023 and potential margin pressure due to residual lockdown impact, less-favorable economies of scale, and capacity relocations. Yet substantial scale benefits and in-house component supplies could enable Hon Hai to cope with slower iPhone momentum and cost pressure better than peers.

– Steven Tseng, analyst

Click here for the research.

Foxconn is now expanding a diversification drive beyond China, to mitigate the risks of US economic and technology sanctions, a move that could initially impact margins. The Apple partner’s preparing new spending for India north of $1.2 billion, Bloomberg News has reported, a big outlay for a Taiwanese company that traditionally assembles the vast majority of devices for Apple and other US brands from central and southern China.

On Monday, Chairman Young Liu reaffirmed Foxconn’s intention to increase investments in India, where it already operates 9 production campuses and more than 30 factories employing tens of thousands of people. The Taiwanese company is in the early stages of expanding in the country but is already taking in around $10 billion of revenue annually, Liu said. 

Longer-term, Foxconn harbors EV ambitions though progress toward that goal has been choppy. A $170-million partnership with Lordstown Motors Corp. fell apart after the Taiwanese company threatened to withhold funding. That incident underscored the challenges Foxconn faces as soaring costs erode already-thin margins in its labor-intensive electronics assembly business. 

Executives on Monday also emphasized their budding AI hardware business, saying revenue from assembling servers for generative artificial intelligence use more than tripled in the first half of 2023.

Read more: Apple to Keep IPhone Shipments Steady Despite 2023 Turmoil

–With assistance from Vlad Savov.

(Updates with executive’s comments from the fourth paragraph)

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