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Earnings at Apple’s iPhone maker Hon Hai beat despite China shutdowns

By on May 12, 2022 0

Hon Hai Precision Industry Co., the maker of most iPhones globally, posted better-than-estimated profits after maintaining production despite component shortages and tight pandemic controls across China.

Hon Hai Precision Industry Co., the maker of most iPhones globally, posted better-than-estimated profits after maintaining production despite component shortages and tight pandemic controls across China.

Apple Inc.’s largest assembly partner reported net income of NT$29.5 billion ($989 million) for the quarter through March, beating the average projection of $28.5 billion NT. Revenue totaled NT$1.41 trillion, Hon Hai previously reported.

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Hon Hai is the largest of a slew of Apple suppliers struggling with prolonged component shortages and logistical bottlenecks resulting from Covid-19 lockdowns in China. But the Taiwanese company, which makes everything from iPhones to Dell desktops and Sony PlayStations in its Chinese factories, has managed to keep its factories running by employing closed-loop production sites. Hon Hai’s scale also gives it bargaining power with customers and suppliers.

The world’s largest contract electronics maker said on Thursday it expects revenue to remain little changed this quarter, given the uncertainty of China’s Covid measures. It expects strong growth in cloud and networking products, although its consumer electronics business may decline slightly, the company said in a presentation posted online.

While Foxconn’s sites in China are operating stably, including key technology centers in Zhengzhou and Shenzhen, the situation on the ground may change quickly and unpredictably. Last Thursday, workers at the Shanghai factory of MacBook maker Quanta Computer flooded the isolation barriers, underscoring the depth of frustrations of residents subjected to often abrupt shutdowns.

What Bloomberg Intelligence says:

While its iPhone business may slow in 2022, Hon Hai’s data center hardware and component segments are expected to stand out and support the gross margin trajectory with the cloud migration trend. The company’s goal of 10% gross margin by 2025 seems achievable to us, as electric vehicles, cloud and components could contribute nearly half of the company’s revenue by then, according to us, compared to 29 to 30% currently.

-Steven Tseng, analyst

As consumer electronics faces a potential downturn, the company has taken steps to diversify its business and move towards a new ambition: electric vehicles.

Its ambitions are based on electric pickup trucks from Lordstown Motors Corp. Lordstown Motors announced Thursday that it has completed the sale of its Ohio electric vehicle plant to Hon Hai for $230 million. With this agreement, Hon Hai plans to expand its customer base and establish its first electric vehicle production outpost in North America.

Chairman Young Liu said on a conference call that expanding its electric vehicle business is Hon Hai’s top priority, with the company aiming for a 5% market share in 2025. Its goal is to ship 500 000 to 750,000 electric vehicles that year, he said.

Production at the Ohio plant is expected to start in the second half of this year, while mass production at Foxconn’s electric vehicle plant in Thailand is expected to begin in 2024.