Foxconn Well Below Forecast on Rising Operating Costs, Shares Fall

Aug 14, 2018 16:28 EDT

Foxconn (TPE:2354) today reported a net profit of T$17.49 billion ($567.25 million) which was a full 20% short of what analysts predicted and slightly below the year prior’s results. Foxconn, also known as Hon Hai Precision Industry Co, is the world’s largest electronics manufacturer, announcing just a year ago that they would be building a factory in the United States in Wisconson.

The major problem would be that analysts are concerned about a loss of momentum in the smartphone market on a global level, primarily because the last year was the first year that smartphone sales weren’t as high as the previous. The reason profits are down is internal investment soared 18.8% this last quarter. “Investment in factory automation and component price hikes capped gross margin,” said analyst Arthur Liao of Fubon Research. This, as well as an investment in the United States, was likely to hit them in their net profits.

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While Foxconn has not been mired in controversy as of late with depressed workers, they are still a bit on the exposed side when it comes to just how much their business relies on the smartphone market, causing the situation that when that market goes anemic, so do their profits. The major problem ended up being the massive amount of unsold inventory they are carrying for the iPhone X, analysts noted. Additionally, with Apple (NASDAQ:AAPL) being the primary buyer from them for nearly all of their wares, if Apple does well, Foxconn does well. With a new iPhone around the corner and with them again being the nearly exclusive supplier for almost all of the components in the smartphone, analyst Vincent Chen from Yuanta Research believes will be helpful for margins going into the third quarter.

“We expect Hon Hai to be the main assembler of OLED version new iPhones and we believe the OLED iPhone model will see better demand in 2H18F.”

So while down this quarter, this is by no means an out for the world’s largest electronics company. Foxconn is getting ready to ramp up is what this indicates, and hopefully, we can all expect to see a round of amazing components out of Foxconn for years to come.