Foxconn tops estimates, but warns of slowing smartphone demand

Apple supplier Foxconn has given a cautious outlook for the current quarter, citing “slowing smartphone demand after two years’ of high growth owing to the pandemic”.  

The Taiwanese electronics maker was ‘wary’ despite reporting a 12% jump, both in its net profit and revenue for the second-quarter (April-June quarter) of the year, beating market estimates, driven by strong demand for its cloud computing products. The company’s Chairman Liu Young-way told in the post-earnings call that the numbers show its “resilience” amid supply chain problems.  

But Foxconn’s growing concerns on ‘slowing smartphone demand’ was found to be similar to those of the other tech firms in Asia that have warned of a decline in sales of smartphones, televisions and other gadgets. The company forecasts flat revenue growth for its electronics business in the upcoming quarter ending in September.  

Until recently, Foxconn did not feel the pinch so much owing to its loyal and relatively affluent customer base (being a major assembler of Apple’s iPhones). Analysts also expected, rising inflation will have a limited impact on demand for mid to high-end smartphones for the rest of the year.  

Now, they have warned that Apple’s demand in China will reduce, as the Chinese economy is still reeling from the effects of Covid-19 lockdowns. Elsewhere too, surging inflation and an upcoming recession in the US and Europe are factors that are likely to stifle consumer spending, it said. Foxconn has also dealt with a severe shortage of chips that impacted production.  

Meanwhile, Chinese PC maker Lenovo recorded its slowest revenue growth in nine quarters. The company said, “Sales of the devices ease after being driven by the pandemic, and it was also hit by Covid-19 lockdowns at home”. 

Lenovo’s subdued business growth coincided with the global PC industry cooling after a pandemic-fuelled sales surge, prompting several companies from chipmakers to electronics manufacturers such as Intel and Samsung to warn of a sharp slowdown in demand.  

Global PC shipments fell 11.1% in the past quarter from a year earlier, the largest year-over-year decline since the second quarter of 2013, according to research firm Counterpoint.  

A July 2022 report by analyst firm International Data Corporation (IDC), also said, global smartphone shipments declined 8.7% year over year in the second quarter of 2022. This marks the fourth consecutive quarter of decline for the smartphone market as shipments fell to 286.0 million units in the quarter, about 3.5% lower than forecast.  

Foxconn, however, expects (without giving numbers) that its revenues from cloud and networking products will remain strong in the third quarter.  

The company has already expanded into areas including electric vehicles (EVs) and semiconductors in recent years, announcing deals with US startup Fisker and Indian conglomerate Vedanta.   

Foxconn has also completed its acquisition of US-based EV maker Lordstown Motors’ Ohio facility and is also building driverless electric tractors for California-based Monarch Tractor, as part of its first manufacturing contract since purchasing the facility. Bloomberg reported another of its potential customer would be Apple, which has been exploring getting into the auto business for years.