The first quarter earnings season across the world have left investors and companies feeling the pains of the Covid-19 pandemic. Now, Taiwanese manufacturing giant Foxconn has added to the woes by reporting a 90% slump in Q1 profits.
The company reported net profits of $70.3 million over January-March 2020, which is not only a steep decline from the numbers a year ago, but is also the lowest numbers shared by Foxconn since the first quarter of 2000 - exactly two decades ago.
What caused the slump?
The ceasure of operations in China following the coronavirus pandemic since late last year is the prime factor behind falling profits, given that most smartphone makers had also reported falling sales leading up to the total lockdown in places like India, where between 11 to 12 million devices get sold each month.
Back in March, Foxconn had alerted investors of the prospects of a bad quarter by not giving any specific indication of how profits would appear for the rest of the year. Foxconn had resumed operations in China in the early part of April itself taking extra precautions for the safety of its employees.
Is the worst over though?
Does it mean that the worst is over? Not likely as Chairman Liu Young-Way says that the company's visibility of their outlook for the whole year continues to be limited. During an earnings call last week, he said there was no way they could offer an outlook for the latter half of the year but affirmed that Foxconn expected revenue declines to be far less pronounced in the coming quarters.
The China plants, which assume around three-quarters of Foxconn's total production capacity, haven't been working at full capacity nor does it believe that optimal numbers would be coming through in subsequent months. With smartphone sales expected to be sluggish, companies like Apple are keeping their demand projections rather close.
Now, Apple plays a game
Meanwhile, there were also reports about Apple encouraging supply-chain partner Luxshare to go beyond making AirPods and expand into territory that has been with Foxconn. For example, in the manufacture of the Catcher, which is part of the iPhone, iPad and Mac supply chains.
A report by Nikkei said Apple was keen on Luxshare expanding its business and it could then become a viable competitor for Foxconn and Pegatron. From Apple's point of view, supplier diversification provides them access to a wider crop of components and saves them from supply constraints as had happened when Foxconn's China plant had to be shut down during the coronavirus outbreak.
The company, which shut down plants in China during January and February, followed suit with its Indian operations, which are now likely to open after the Federal government relaxed the lockdown rules from today. Foxconn also has plants in Brazil, the Czech Republic, Mexico, Vietnam and the United States.
In his statement, Liu said Foxconn expects a double-digit revenue growth in the current quarter based on demand for technologies needed to work from home and with the home entertainment sector.
