Foxconn Profit Drops 90 Percent Due To Pandemic

The news is not surprising given the decline in both economic activity and the layoffs causing consumers to put off purchases like new smartphones.

But it does underscore the extent to which the global economy is intertwined, which is why mutual interest will drive the US and China  to seek some sort of rapprochement. JL

Yimou Lee and Ben Blanchard report in Reuters:

Foxconn's profit plunged to its lowest in two decades, all but wiped out after the pandemic forced the firm to suspend manufacturing operations in China and knocked down demand from Apple. It expects global smartphone production to slump a record 16.5% in the June quarter from a year earlier. “For consumer electronic products, because everyone is staying at home, it affects consumers’ purchasing power and such power might take a very long time to recover.”
Foxconn’s first-quarter profit plunged to its lowest in two decades, all but wiped out, after the coronavirus pandemic forced the Taiwanese firm to suspend manufacturing operations in China and knocked demand from customers including Apple.

But the world’s largest contract electronics manufacturer, formally called Hon Hai Precision Industry Co Ltd, said the worst of the virus outbreak for the company was over.

New growth was to be found in the work-from-home lifestyles being adopted around the world even if the outlook for smartphone and other consumer electronics demand remained bleak, it said.

“Hon Hai will stabilize in the second quarter,” Foxconn said in a statement, adding that all of its main factories in China have now resumed normal operations.

Net profit for January-March slumped 90% to T$2.1 billion ($70.3 million) from a year earlier - the lowest level since the first quarter of 2000 and well short of a Refinitiv consensus estimate of T$8.88 billion. Revenue declined 12%.

For the second-quarter, the company expects revenue will show double-digit percentage growth from January-March although it will still likely mark a single-digit decline from the same period a year earlier.

“Telecommuting, online entertainment and new lifestyles have brought us new growth momentum,” Foxconn Chairman Liu Young-way told an investor teleconference.

He added that its enterprise and computing units are expected to see a yearly revenue growth of more than 10% and more than 15% respectively in the current quarter.

The exception is its consumer electronics division, much of which is smartphones. The division is forecast to post a 15% yearly decline in sales as the virus is set to have “an enormous” impact on demand. In the first quarter, the division accounted for 42% of revenue.

“For consumer electronic products, because everyone is staying at home, naturally it affects consumers’ purchasing power and such power might take a very long time to recover,” he said.

Highlighting that weak demand, first-quarter smartphone shipments in China tumbled 20%, its largest decline ever, data from market researcher IDC showed this month.

Taiwan-based research firm TrendForce said last month it expects global smartphone production to slump a record 16.5% to 287 million phones in the June quarter from a year earlier as the coronavirus muzzles demand.

Liu declined to given an earnings outlook for the second half or the full year, saying the pandemic had made forecasting too uncertain.

Foxconn shares closed 1.4% lower ahead of the results on Friday, versus a 0.3% gain for the broader market .TWII. They have lost 15% for the year to date.