With Weaker Global PC and Smartphone Sales in Calendar Q1 2019, Foxconn & Pegatron Report Significant Profit Declines
Major iPhone assemblers Foxconn and Pegatron suffered significant profit declines in the quarter ended in March, as Apple's decision to cut retail prices amid slowing demand hurt manufacturers, according to a new Nikkei Asian Review report. But it's not as simple as pointing a finger at Apple alone.
Foxconn, which formally trades as Hon Hai Precision Industry, released it quarterly earnings on Tuesday evening, revealing that its operating profit plunged nearly 35% on the year and net income fell nearly 18% annually. Rival Pegatron's profitability was squeezed even further. Its operating profit plummeted 80.5% on the year and net profit dropped by 36%.
It's important to keep things in perspective. The Nikkei Asian Review report failed to mention that Apple is not Foxconn's only major customer. Below is a list of other OEM's that use Foxconn's assembly services:
Acer Inc. (Taiwan)
Amazon.com (United States)
Apple Inc. (United States)
BlackBerry Ltd. (Canada)
Cisco (United States)
Dell (United States)
Google (United States)
Hewlett-Packard (United States)
InFocus (United States)
Intel (United States)
Microsoft Corp. (United States)
Motorola Mobility (United States)
HMD Global (Under Nokia Brand) (Finland)
Vizio (United States)
Google acknowledged that Pixel 3 sales were disappointing in Q1 2019 and there's been a general slump in PC sales as well due to chip constraints. So the Nikkei trying to make Apple the scapegoat for the drop in Foxconn and Pegatron's profit declines alone is close to being fake news. Failing to provide an overview of Foxconn's clients allows the Nikkei to make their story more dramatic that Apple is the company to squarely blame.
The Nikkei's report continued to blame Apple by reporting that "Apple -- the biggest client of both Foxconn and Pegatron -- recorded the first-ever shipment decline for its iconic iPhones in 2018. It once again lost its position as the second-biggest smartphone in the world to Chinese rival Huawei Technologies in the January-to-March quarter, according to Counterpoint Research. While iPhone shipments dropped 20% on the year, shipments of Huawei phones rose by 50%, the statistics showed."
Considering that Huawei is a Foxconn customer and reportedly grew by 50% in Q1 in contrast to Apple's decline being somewhere between 23 and 30% (discounting the IHS private report), Foxconn should have come out ahead. But of course in the real world It's not that simple with many other customers having weaker product sales for calendar Q1 2019.
Chiu Shih-fang, a smartphone and supply chain analyst at Taiwan Institute of Economic Research, told the Nikkei Asian Review that "if it becomes a full-blown trade war, it would further slow the global economy and hit demand for all electronics devices. "Those will all make suppliers' lives even more difficult."
Chiu added that "The overall smartphone demand is already very weak. It's not very possible for Apple and other smartphone makers to increase their price tags. It's very likely that both smartphone makers as well as the supply chain need to absorb and digest that cost, as shifting away from China is not going to happen overnight." For more on this, read the full Nikkei Asian review report here.
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