Taiwan’s Foxconn, the world’s largest contract electronics maker and Apple Inc’s biggest iPhone assembler, said on Friday it expected an on-year drop in first-quarter revenue coming off a high base. The quarterly report echoed weak forecasts from fellow Apple suppliers in December and added to fears of a slowdown in smartphone demand. Apple suppliers’ shares, including casing maker Jabil Circuit Inc. and chipmaker Dialog Semiconductor GmbH, fell between 2 percent and 6 percent. They were among the worst-performing stocks on the benchmark Taipei Composite Index.
The company, formally known as Hon Hai Precision Industry Co Ltd, reported lower sales in its primary segments – computing products, intelligent consumer electronics, and cloud and networking products. Sales of these products declined sequentially from a year ago, mainly due to inventory adjustments following a pandemic-driven growth boost.
“While the current demand environment remains challenging, we are still optimistic that business performance will improve in the second half of this year,” the company said. It stuck to its guidance for significant revenue growth in the fourth quarter when demand typically accelerates as major vendors such as Apple launch new products for Western markets’ year-end holiday period.
Amid a global consumer electronics slowdown, Apple’s iPhone sales have been hit by rising competition and pricing pressure. Analysts say a slowdown in China, the world’s biggest smartphone market, could add to those challenges, as it is where most of the smartphones made by Foxconn are sold.
At its peak, Foxconn employed 1 million workers in a single factory in China to assemble Apple’s hit products, such as the iPhone. The Taiwanese company is now moving away from that model, trying to diversify production and make it more resilient to future downturns. It has opened plants in India, Mexico, and Vietnam and plans a massive new facility in Wisconsin. Its strategy may respond to the sluggish demand, but it also underscores how the nature of manufacturing has changed. China no longer offers the advantages of labor, logistics, and reliability that once drove companies to set up massive plants there.
While the American plant would offer many of the same perks as its Chinese operations, it might attract a different number of employees. As the company shifts to a more diverse production, it might also need help finding enough talent for jobs that do not require specialized skills. And if it fails to build its presence in high-growth industries such as healthcare devices, robotics, and electric vehicles, the risks for all involved are significant. It is not just the bottom line that would be impacted; it could impact geopolitics and global supply chains. In the end, the new strategy’s success will have a lot to do with whether the new generation of consumers is ready to upgrade their gadgets. If not, it will be difficult for the world’s most valuable technology company to justify its valuation.