Foxconn falls short of forecasts

Taiwan’s Foxconn posted a weaker than expected rise in quarterly profit amid warning signs from key customer Apple and its international suppliers that demand for iPhones could be softening.

Foxconn, formally known as Hon Hai Precision Industry, reported net profit of 24.88billion New Taiwanese dollar ($806m) for the third quarter on Tuesday, 12% short of analysts expectations. While this was its biggest quarterly profit so far in 2018 and 18% above the yearearlier results, it was below a mean estimate of T$28.26bn from nine analysts, according to I/B/E/S data from Refinitiv.

Compared with the previous quarter’s profit growth, “the main reason for the results was entry into the peak season, increase in shipment scale, and rise in production efficiency and yield,” a company official told reporters. “Costs controls were good, the ratio of operating expenses was smaller, which led to a profit increase performance,” the official said.

Apple said earlier in November that holiday sales would miss Wall Street expectations due to weakness in emerging markets, including India, and foreign-exchange costs.

Shares in Foxconn and other Asian suppliers and assemblers for Apple fell on Tuesday after several component makers warned of weaker than expected results, leading some market watchers to call the peak for iPhones in several major markets.

Last week, Hon Hai reported that its October sales were up 21.5% year on year, the slowest year-on-year growth rate for any month since April.

Analysts said that Apple changing the bottom cover of the iPhone 8 and iPhone X from metal to glass hurt profits at Foxconn, which had supplied the metal component.

Foxconn’s gross margin this year is unlikely to return to the 7% it enjoyed in the 2015/16 financial year due to weakening iPhone shipment growth and lower prices for metal casings, Fubon Research analyst Arthur Liao said in a research note ahead of the company’s earnings.