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Apple supplier Foxconn adjusts production to prevent holiday blues

Apple supplier Foxconn said Thursday it expected smartphone revenues to decline this quarter and is adjusting manufacturing to avoid recent COVID-19 restrictions.

Apple Inc supplier Foxconn said on Thursday it expected smartphone revenues to decline this quarter and is adjusting production to prevent recent COVID-19 restrictions at a massive iPhone factory in China from impacting holiday orders.

Foxconn has made headlines in recent weeks, with strict virus restrictions at its factory in Zhengzhou, the world’s largest iPhone factory, suspending production and fueling concerns about the impact of China’s virus policies on global supply chains. The factory in China’s industrial center employs approximately 200,000 people.

During a profit call, chairman Liu Young-way said the Christmas and Lunar New Year holidays are “very important”.

“We will certainly do everything we can to adjust our production capacity and output, so there will be no impact on demand for these two holidays,” said Liu. He did not give details.

The cost impact of the COVID controls, including offering bonuses to retain employees, will be short-lived, and Foxconn has been working with the government to resume normal production as soon as possible, he added.

On Wednesday, Foxconn said it would continue production in Zhengzhou under a “closed loop” system, where on-site staff live and work in a bubble isolated from the rest of the world.

Many workers have fled the factory due to the rigid controls that have restricted people’s movement and have seen forced quarantine, with stories of food and medical shortages circulating on social media.

If the disruptions continue, it could hamper Foxconn’s ability to ship iPhones in what has traditionally been peak season for Taiwanese tech companies as they race to deliver cellphones and other electronics to western markets before the end of the year, followed by the Lunar New Year. in eastern Asia.

When asked whether customers are pushing for distribution of production to other Chinese cities or outside of China, Liu said geopolitics will be more likely to play a role in restructuring Foxconn’s manufacturing footprint than the pandemic.

“Of course, there may be other factors that require the reconfiguration of production capacity, such as geopolitics,” Liu said.

COVID OVERSHADES OUTLOOK

The Taiwanese company, formally named Hon Hai Precision Industry Co Ltd, said net profit for the July-September quarter rose 5% to T$38.8 billion, from T$36.98 billion a year earlier.

Eleven analysts expected an average profit of T$41.3 billion, according to Refinitiv.

Foxconn said on Monday it would “update” its fourth-quarter outlook given the situation in Zhengzhou, Foxconn said sales would be flat in the last three months of this year. It had a relatively conservative outlook for 2023.

Foxconn said it expects a slight year-over-year fourth-quarter revenue decline for its smart consumer electronics business, including smartphones, and significant growth for cloud and networking products.

It also forecast strong revenue growth in the fourth quarter of computer products, including laptops.

Shares of Foxconn, which has a market cap of $43.6 billion, closed 2% ahead of earnings release, trailing a 1% decline in the broader market.

Foxconn’s disappointing earnings come at a time when investors are concerned about dwindling demand for technology due to high inflation and escalating problems in the global supply chain, partly due to China’s COVID policy, with no clear exit strategy. is in sight.

Apple Inc. has also fallen victim to China’s strict COVID policies, as Foxconn accounts for 70% of iPhone shipments worldwide, with the California-based supplier slashing its forecast for shipments of the premium iPhone 14 models this week.

Spot lockdowns and business disruptions have exposed the risks facing businesses in China, with global companies including Canada Goose Holdings Inc and Estee Lauder Companies Inc closing local stores and lowering forecasts.

In some cases, only a handful of cases have resulted in citywide lockdowns, which have taken a heavy toll on business activity and consumer confidence.

Reuters reported last month that Foxconn’s production of Apple’s iPhones at its Zhengzhou plant could fall by as much as 30% in November due to strict COVID-19 restrictions.

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