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Technology

iPhone maker Foxconn's net profit dips for 3rd straight year

Apple suppliers resume China production but uncertain demand clouds outlook

TAIPEI -- Key iPhone supplier Foxconn on Monday reported a third consecutive year of lower profits as the smartphone industry continues to slow.

Net income at Foxconn, formally traded as Hon Hai Precision Industry, fell 10% to 115.3 billion New Taiwan dollars ($3.81 billion) in 2019, while operating income dipped nearly 16% on the year. The company's gross margin was 5.9%, lower than the 6.27% in 2018 and well below its goal of 10% by 2025.

Net profit for the key iPhone assembler climbed NT$47.8 billion in the final quarter of 2019, supported by the launch of the new iPhone 11 range in late September. However that represents a decline of more than 20% from the same period of 2018, due to a delayed shipment of the previous year's iPhone that resulted in higher comparisons, market analysts said.

FIH Mobile -- Foxconn's Android phone-making arm that counts Huawei, Google, Xiaomi, Nokia and Oppo as clients -- improved its financial performance but still reported a net loss of $12.29 million in 2019, compared with a net loss of $857 million in 2018.

Foxconn chairman and CEO Young Liu has vowed to look beyond consumer electronics to spur growth, citing fields such as electric cars and 5G networking equipment. Global smartphone shipments fell 2.3% to 1.37 billion units in 2019, the third year of decline, according to IDC.

Foxconn is already looking at a difficult start to 2020. Along with smaller iPhone assembler Pegatron, MacBook maker Quanta Computer, iPad producer Compal Electronics and AirPod supplier Inventec, the company lost production in China during the first quarter due to the deadly coronavirus outbreak.

Foxconn's Liu said in early March that he estimated the company would experience a 15% fall in year-on-year revenue in the first quarter.

Tech suppliers expect their operational performance to rebound in the second quarter as production in China has gradually resumed, but the worsening coronavirus pandemic is hitting global demand.

Apple, the biggest client to Foxconn, Pegatron, Quanta and Compal, is laying the groundwork should it have to delay the launch of its first 5G iPhone. The American tech giant, which was expected to introduce its next handsets in the fall, is weighing the impact that the pandemic is having on global demand, the Nikkei Asian Review reported.

"We are likely to improve our performance next quarter [April to June], but no one can really know what global demand will look like in the second half of this year," Pegatron CEO S.J. Liao told investors on Thursday. "If the coronavirus continues, it would have a major impact on the global economy."

iPad maker Compal, which also makes notebook computers for HP and Dell, on Monday said that although orders for commercial and educational notebooks are robust through the April-to-June quarter due to home-schooling and e-learning demand around the world, it is hard to predict the outlook for the rest of this year.

"If the world is lucky enough to contain the coronavirus before June, then the demand [for electronic goods] might be able to [be sustained] and we might be able to keep the second half of this year at the same level from last year," Compal CEO Martin Wang told investors on Monday. "If the outbreak goes beyond, then I think even [central banks] could not help the global economy from going down."

Chiu Shih-fang, a veteran analyst with the Taiwan Economic Research Institute, said the global tech supply chain was braced for uncertainty as worldwide demand for electronics shows significant signs of weakening.

"Most of the electronics and component makers," Chiu said, "will likely see some orders cut when we move into the April-June period despite some rush needs to make up for losses of production in the first quarter when their Chinese production sites were hit badly by the coronavirus.

"It's not clear how bad the coronavirus will get or how long it will take for a recovery. But it's certain that the end-demand has already dropped globally. For the smartphone market, it's likely we will see an overall 10% decline for 2020 while we will also see a slowdown in 5G deployment and adoptions."

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