Hon Hai posted its biggest earnings decline in almost nine years as technical hiccups disrupted production of Apple’s 10th-anniversary iPhone, according to Bloomberg.
Apple’s main device-assembler reported a 39 percent decline in net income to NT$21 billion ($696 million) in the three months ended September, lagging the NT$37.2 billion projected. That was the largest fall in profit since the final quarter of 2008 for the Taiwanese company, which gets more than half its business from Apple.
Apple’s decision to adopt technically demanding facial-scanning sensors for the iPhone X initially stymied some suppliers and held back Hon Hai’s business in turn. The U.S. company was said to have struggled to crank out enough of its priciest and most in-demand model for the crucial holiday period. And it continues to grapple with a dearth of suppliers capable of making organic light-emitting diode or OLED displays. Hon Hai’s operating expenses climbed more than 16 percent in the quarter, squeezing the company’s net margins to under 2 percent.
The growing market share of Chinese smartphone vendors from Huawei to Vivo also weighed on Hon Hai’s performance, given many assemble their own devices. And while worldwide smartphone shipments grew 5 percent in the September quarter, that was driven by demand for cheaper handsets in emerging markets, according to researcher Counterpoint.
Hon Hai had previously reported disappointing quarterly revenue as the iPhone 8 failed to take off. While the company is the exclusive assembler of the iPhone X, Apple didn’t start selling its marquee device until November, almost two months after the iPhone 8 hit shelves. Foxconn shared work on the cheaper device with other assemblers.
Hon Hai is now shifting its attention from pure electronics assembly, a business plagued by growing expenses and thinning margins. Billionaire founder Terry Gou is installing robots to automate and offset rising labor costs in China, its main base of production. He travels frequently to the U.S., signing a deal to build a $10 billion display plant in Wisconsin. And his company’s eyeing manufacturing for the healthcare, automobile and artificial intelligence sectors.
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