Weak iPhone X Sales Responsible For 14.5% Drop In Foxconn’s Profits

Foxconn Technology Group, a key iPhone assembler, reported less than expected January-March earnings primarily because of a small – 3%, enhancement in shipments of Apple’s smartphones in the aforesaid quarter.

The Taiwanese company noted a 14.5% decrease in its net profits y-o-y at $809.8 million in the quarter. This was the lowest first quarter income for the company in the last four years.

The company is the only assembler of iPhone X and is the biggest company in terms of order allocation for iPhones.

There was a drop of 1.17% in the gross margin of the company over the quarter to reach 6.19%. this was partly blamed on the strong New Taiwan dollar against the U.S. dollar. The operating margin for the company was at 2.4% – 1.34% less than the same quarter last year.

“The increasing research and development expense on new clients and new products weighed on the operating margin, compared with the same period last year,” the company’s investor relations official said. The official added that in the fields of smartphones, TVs and networking devices, the company has managed to add on new clients and products.

“Foxconn’s earnings result indicated that the sales momentum of the high-priced iPhone X did not extend to the March quarter,” said Vincent Chen, an analyst at Yuanta Securities Investment Consulting. He added that in addition to the pressures from the New Taiwan dollar’s appreciation against the greenback, the company also faced pressures in pricing because of increasing rivalry form peers which resulted in the very slender operating margin performance.

While at one end the spectrum, there was a drop in the income for Foxconn, at the other end, Apple Inc. noted a 25% increase in net income y-o-y at $13.8 billion which is a record for the iPhone maker for the March quarter. The company also reported a 16% increase in its revenue at $61.1 billion.

Compared to Foxconn, there was a 46.4% drop in the net profit of competing iPhone assembler Pegatron for the March quarter.

The prospectus for an initial public offering was filed at the Shanghai Stock Exchange by a Foxconn subsidiary based in the southern Chinese city of Shenzhen – Foxconn Industrial Internet, following approval by the Chinese authorities.

With the aim of increasing its returns to its shareholders, there are plans by Foxconn to reduce its capitalization by NT$34.6 billion, or by 20%. This would be the first time that the company would be reducing its capital ever since it got itself listed at the local stock exchange in 1991.

“The company decided to adjust its capital structure to give more returns to shareholders,” Corporate Finance Department Director Sam Kung told a press conference in Taipei. Any conjecture of linkage between the listing of its subsidiary in overseas market and the capital restructuring at Foxconn were denied by him. The company also does not aim to affect its stock price through the capital reduction, he added.

(Adapted from Asia.Nikkei.com)


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