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iPhone Maker profit missed in quarter before China Covid unrest

Hon Hai Precision Industry Co., maker of most iPhones in the world, warned that consumer electronics sales will decline this quarter due to a Covid outbreak.

Hon Hai Precision Industry Co., maker of the most iPhones in the world, warned consumer electronics revenues will fall this quarter as it struggles with a Covid outbreak that walled off its main manufacturing base in central China.

The company, also known as Foxconn, reported revenues that fell short of third-quarter estimates and said revenue growth will be flat for the current three-month period. Hon Hai is now trying to resume full production after a coronavirus flare-up in October caused a shutdown around its largest factory in Zhengzhou last week, severely limiting the flow of goods and people needed to support iPhone assembly. .

Executives reiterated that they were working with the government to contain the outbreak and get the plant back up and running.

Foxconn’s warning about sales underscores the toll of China’s Covid Zero policy, a rigid system of sudden lockdowns and massive tests that is suppressing the world’s No. 2 economy. The curbs at the factory dubbed “iPhone City” — a massive complex with some 200,000 workers estimated to build four of the five of the world’s newest iPhones — dealt a blow to Apple Inc. and its main supplier, who struggled to stop an exodus of workers.

Harsh Covid restrictions are exacerbating the effects of declining consumer electronics demand worldwide. On Thursday, Pegatron Corp., Apple’s other major iPhone partner, warned that sales would fall in 2022, with a 15% to 20% drop in notebook revenue in the fourth quarter.

In Japan, the main chip equipment supplier, Tokyo Electron Ltd., cut its forecast for operating profit this year by 24%, explaining that memory chip manufacturers are pulling back on capital expenditures. The company said it is also likely to lose because of US restrictions on the sale of advanced chip equipment to China.

Foxconn’s net profit rose 5% to NT$38.8 billion ($1.22 billion) in the September quarter, compared to the median estimate of NT$41 billion, the device maker said Thursday. Revenue grew 24% to NT$1.75 trillion, surpassing the estimate of NT$1.52 trillion. Shares of the company fell 2% in Taipei.

In the first half, the company had beaten earnings expectations, thanks in part to effective supply management during Covid lockdowns, as it gained support from local governments to maintain a critical flow of components. Foxconn has said it is managing the Zhengzhou lockdown in coordination with authorities.

If Foxconn can quickly get its production back on track and get the Covid situation under control, sales should take another hit in the first half of November before gradually recovering, analysts at Citigroup Inc. in a note dated Nov. 6.

The disruption coincides with the US Christmas shopping season and a sharp slowdown in global demand for electronics. Apple warned on Sunday that it would ship fewer premium devices than expected due to the lockdown in Zhengzhou.

Struggling with lukewarm demand for cheaper iPhone 14s, the US company expects to produce at least 3 million fewer iPhone 14 handsets this year than originally expected. The company and its suppliers are now aiming to make 87 million devices or less, compared to a target of 90 million units earlier, Bloomberg News reported this week.

Foxconn plans to issue more capital in 2023 and most of it will go to its already massive manufacturing base, chairman Young Liu told analysts on Thursday.

In the longer term, Foxconn is also looking to expand into electric vehicles. The world’s largest contract manufacturer has targeted a 5% market share in EVs by 2025, aided by the acquisition of Lordstown Motors Corp.’s electric pickup truck plant. in Ohio.

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