A key supplier to Apple Inc. and a dozen other tech giants are planning to split their supply chain between the Chinese market and the US, declaring that China’s time as a factory to the world is over due to the trade war.
Hon Hai Precision Industry Co. Chairman Young Liu said it is gradually adding more capacity outside China, the main production base for gadgets from iPhones to Dell desktops and Nintendo switches. The share outside the country is now 30%, up from 25% in June last year.
That ratio will increase as the company ̵
“Whether it’s India, Southeast Asia or the Americas, there will be a manufacturing ecosystem in everyone,” Liu said, adding that while China will still play a key role in Foxconn’s manufacturing empire, the country’s days are the world’s factory. “
Amplified trade tensions between Washington and Beijing have driven device manufacturers to diversify their production bases away from China, and Liu said last year that Apple’s most appreciated product, the iPhone, could be made outside China if needed. The two nations remain in trade talks, but Liu’s comments confirm a growing expectation that the Chinese-centric electronics supply chain will fragment in the long run.
Read more: Trump Tumult has gadget giants that divide along US-China lines
The Taiwanese company reported better-than-expected revenue of $ 22.9 billion ($ 778 million) for the quarter ended June, increased by increased demand for the iPad and MacBook. Revenue was $ 1.11 trillion, but Hon Hai warned that it expects third-quarter sales to decline by double digits relative to 2019 as Apple delays its iPhone launch this year.
She Hai bounces back from a record yield decline during the first quarter when production at its factories recovered and orders on site protected demand for home equipment. The pandemic is likely to increase iPad and Mac sales, even as the Apple Store’s closures weighed on iPhone sales, Apple CEO Tim Cook said on July 31 after reporting quarterly revenue that shattered estimates. Apple accounts for half of Hon Hay’s sales.
Read more: Apple Smashes Revenue, IPhone Estimates on Pandemic Demand
Even as Apple surpassed, Hon Hai’s other customers have been less successful. The Hong Kong-listed subsidiary FIH Mobile Ltd. said in its August 7 profit issue that while Huawei Technologies Co.’s new phones have been popular in China, they missed expectations elsewhere after US sanctions. Another key customer, Xiaomi Corp, suffered a setback in the Indian market amid growing tensions between China and the South Asian country. FIH lost $ 100 million in the first half of the year.
Foxconn has shaken up its traditionally China-focused operations. She Hai is among Apple partners planning to expand operations in India, potentially helping the iPhone maker grow its 1.3 billion presence in the country and shift part of the US company’s supply chain outside China as a link between Washington and Beijing.
Chinese rivals are also a growing challenge. Local electronics-titanium Luxshare Precision Industry Co. is set to become the first Chinese home-grown iPhone stand after sealing a deal in July to buy an Apple production plant from Wistron Corp. While Hon Hai will keep assembly orders for premium iPhones, Luxshare will eat into the business of Apple phones from mid-to-early, Fubon Securities analyst Arthur Liao wrote in a July 23 note.
Foxconn will work with its component business to maintain technical leadership and it will also benefit from its long-term relationship with Apple, Liu said in response to several analysts’ questions about Foxconn’s competitive strategy with the rising Chinese supplier.
Orders may be further affected after President Donald Trump issued an executive order preventing U.S. residents from doing business with Tencent Holdings Ltd.’s WeChat. Annual iPhone shipments could drop 25% -30% if Apple is forced to remove the app from its app stores worldwide, TF International Securities analyst Kuo Ming-chi warned in a note of 9 August.
(Updates with comments from the chairman from the first paragraph)
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