Foxconn’s First Quarter Profit At Two-Decade Low

A significant drop in demand for its main client Apple and a forced closure of manufacturing at its main production unit in China because of the novel coronavirus outbreak resulted in the Taiwanese firm Foxconn reporting the lowest first quarter profit in at least two decades. In fact, its profits have all but but wiped out.

The worst impact and disruption because of the virus outbreak for the company was over, said Foxconn, which is the largest contract electronics manufacturer of the world and is also known by the formal name of Hon Hai Precision Industry Co Ltd.

It said that even while it is expected that the demand and outlook for smartphone and other consumer electronics will remain bleak, the growth area for the company can be found in the growing trend among consumers to work from home, forced by the coronavirus pandemic, all across the world.

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

The company reported a 90 per cent drop in net profit for January-March quarter which came in at T$2.1 billion or $70.3 million compared to the same quarter a year ago. This was lowest profits for the company since the first quarter of 2000. It was also well short of analysts’ expectations of T$8.88 billion according to Refinitiv. Revenue also declined by 12 per cent in the quarter.

The company expects that its revenues will grow in double digit percentage in the second quarter compared to the first quarter even though that number will still likely be lower by single digit percentage compared to the same period a year ago.

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

The company expects a yearly revenue growth of more than 10 per cent and more than 15 per cent kin its enterprise and computing business respectively in the current quarter, he added.

The company is concerned however about the growth in its consumer electronics division, much of which is smartphones. It is forecast that the division is likely to post a 15 per cent yearly decline in sales because of “an enormous” impact on demand because of the global spread of the novel coronavirus pandemic. About 42 per cent of the revenue in the first quarter was contributed by the division.

“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.

There was a 20 per cent drop in shipments of smartphones in the first quarter in China, the company said highlighting that weak demand in the division. That decline is the lowest ever according to data from market researcher IDC showed this month.

It is expected that there will be a record slump of 16.5 per cent in the global smartphone production to 287 million phones in the June quarter compared to a year ago because of the reduced demand caused by coronavirus, Taiwan-based research firm TrendForce said last month.

(Adapted from NYTimes.com)

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