Foxconn reports surge in profits, cautions on COVID-related supply chain hit

Foxconn results
A sign of Foxconn is seen at a glass door inside its office building in Taipei, Taiwan November 12, 2020. REUTERS/Ann Wang

TAIPEI (Reuters) -Foxconn, which assembles Apple’s iPhones, reported a consensus-beating 30% surge in quarterly profit on Thursday but cautioned it would have to “wait and see” if the worsening COVID-19 crisis in Asia would hurt its supply chain.

The world’s largest contract electronics maker has benefited from strong demand for technology products as people continue to telecommute amid the pandemic – a trend smartphone and laptop sellers such as Samsung Electronics and Lenovo say is likely to persist.

For the Taiwanese company, demand for smartphones has been the main driver of record high net profit and revenue in the first half of the year, Chief Financial Officer David Huang said on a conference call to discuss second-quarter results.

For April-June, Foxconn reports that revenue rose by a fifth to T$1.35 trillion from a year earlier. For the third quarter, it forecast a 3-15% rise in overall revenue and a more than 15% jump in revenue from its consumer electronics business.

Chairman Liu Young-way said the forecasts were based on the pandemic development at the moment.

“The epidemic situation appears to be worsening in Asia,” he said. “Because Asia is the key global hub for ICT components, it needs to be closely watched whether the epidemic will have an impact to the overall supply chain,” he said, referring to the supply chain for tech products.

Countries in the Asia-Pacific region, including Australia, Japan, Philippines, Thailand and Malaysia have seen a recent rise is COVID-19 cases, leading to stricter curbs.

The pandemic has shaken supply chains and fuelled a months-long global shortage of chips that has hurt many smartphone makers, consumer device firms and car companies.

But Foxconn felt only a small impact from the chip shortage in the April-June quarter thanks to A-list clients who had more clout with their suppliers, Liu said. He reiterated that the shortage could extend into the second quarter of 2022.

iPhone sales to boost business

Apple said in July that the chip shortage that hurt its ability to sell Macs and iPads will start to affect iPhone production and forecast slowing revenue growth.

Despite the bearish outlook, analysts said Apple’s upcoming iPhone 13 models would still boost Foxconn’s business, with Taipei-based Fubon Securities expecting Foxconn to assemble 75% of the forecast total of 85 million new iPhones this year.

Foxconn, formally called Hon Hai Precision Industry Co Ltd, had been seeking to buy chip plants to stabilise supplies for its new business in electric vehicles (EV) – a sector in which it plans to become a major player by between 2025 and 2027.

EV is likely to bring in revenue of more than T$10 billion this year, representing a 40% increase from a year ago, with growth expected to be even higher next year, Liu said.

For the April-June quarter, Foxconn’s net profit rose to T$29.779 billion ($1.07 billion), compared with a Refinitiv consensus estimate of T$25.98 billion drawn from 12 analysts.

Foxconn’s shares have risen about 16% this year. They ended flat on Thursday, in line with the broader market.

($1 = 27.7900 Taiwan dollars)

(Reporting By Yimou Lee and Ben Blanchard; Editing by Himani Sarkar and Sayantani Ghosh)

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