Foxconn’s Warning: Predicts worsening market for electronics as it sees sales decline in 2023

Hon Hai Precision Industry, or as it is more popularly known as, Foxconn, has changed its expectations for this year’s sales.

Initially, they thought the revenue generated this year would remain stable, but now they predict a significant drop in those numbers. This change raises concerns about the demand for the products they manufacture for Apple and other global companies.

Foxconn’s number takes a dip
The company from Taiwan recently mentioned that it anticipates a decrease in sales for both the ongoing quarter and the entire year. Unfortunately, many of their primary business segments are experiencing a serious contraction.

In their latest report on Monday, Foxconn revealed a net income of NT$33 billion (equivalent to $1 billion), surpassing the average estimate of NT$25.93 billion.

However, their operating profit fell short of the estimates. Additionally, they suffered a 14 per cent decline in revenue for the period, marking their first decrease since the final months of 2021.

These results from Hon Hai emphasize the growing belief that the global electronics market is heading into tougher times. People and businesses are refraining from spending due to the economic downturn.

Well-established companies in the tech industry, like Apple, Qualcomm, and TSMC, have all cautioned that the downturn, which began after the pandemic, might last longer than they had hoped for.

Apple seems not to be worried
Apple, which happens to be Foxconn’s primary customer, hinted in August at its most prolonged sales decline in many decades. This drop in sales is due to reduced demand for phones, computers, and tablets on a global scale. The Chinese market, the world’s largest for such devices, is stuck in an economic rut that some economists believe could worsen over time.

Despite these challenges, Apple has asked suppliers to produce around 85 million units of the iPhone 15 this year, roughly consistent with the previous year. This decision is an effort to maintain shipments at a steady pace despite the uncertain global economy and an expected dip in the overall smartphone market. However, this move might actually boost revenue because Apple is contemplating raising prices for its Pro models.

An analyst named Steven Tseng from Bloomberg Intelligence suggests that Hon Hai’s revenue could be impacted by slow iPhone growth in 2023, as well as potential margin pressure due to the lingering effects of lockdowns, less favourable economies of scale, and changes in production capacity. Nonetheless, he believes that the company’s significant scale advantages and its ability to supply in-house components could help it handle the challenges of slower iPhone sales and cost pressures better than its competitors.

Foxconn diversifying out of China
Foxconn, the parent company of Hon Hai, is currently diversifying its operations away from China to reduce the risks associated with US economic and technology sanctions. This move might initially affect their profit margins. The company is also planning significant investments in India, exceeding $1.2 billion, a substantial commitment for a Taiwanese company that has traditionally manufactured most of its products for Apple and other US brands in China.

Looking ahead, Foxconn has aspirations in the electric vehicle (EV) sector, although progress in that direction has been inconsistent. A partnership with Lordstown Motors worth $170 million fell apart due to funding disputes. This incident underscores the challenges Foxconn faces as rising costs eat into already slim profit margins in their labour-intensive electronics assembly business.