LDN - Business

Apple supplier Foxconn steps up investment outside China, as consumer electronics demand dips

[March 15, 2023] By Yimou Lee and Sarah Wu

TAIPEI (Reuters) -Apple Inc supplier Foxconn on Wednesday said it plans to ramp up investment outside of China and efforts to attract automakers to its contract manufacturing business, as the company reported weaker demand for consumer electronics.

Foxconn, which assembles around 70% of iPhones, has been diversifying production away from China, whose strict COVID restrictions disrupted its biggest iPhone plant last year. The company also seeks to avoid a potential hit to its business from mounting trade tensions between Beijing and Washington.

"It is customer demand that guides our considerations on how to deploy our production capacity in the ICT field," Foxconn Chairman Liu Young-way said on an earnings call, referring to information and communications technology.

He said expansion was needed in countries such as the U.S., Vietnam, India, Mexico and China, "in response to customer and supply chain adjustments".

Liu said currently about 70% of the company's revenue is derived from products made in China, but "going forward the proportion of overseas region will continue to increase."

Foxconn did not say how much its investment would increase by this year.

WEAK CONSUMER DEMAND

The world's largest contract electronics maker expected revenue for the first quarter and full year to be flat, as weak demand for consumer electronics would be offset by significant growth in computing, cloud, networking and component products.

More than half of Foxconn's revenue comes from consumer electronics.

"We maintain a relatively conservative view towards the smart consumer electronics and think they might decline slightly," Liu said, pointing to factors including last year's high base as well as inflation and the slowing global economy.

Foxconn grabbed headlines in November when curbs to control COVID-19 prompted thousands of workers to leave its massive factory in China's Zhengzhou city, disrupting production ahead of Christmas and January's Lunar New Year holidays.

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The Apple Inc logo is shown outside the company's 2016 Worldwide Developers Conference in San Francisco, California, U.S. June 13, 2016. REUTERS/Stephen Lam

Foxconn, which wants to replicate with electric vehicles the success it has had with the iPhone, said it was both approaching and being approached by many automakers.

"Foxconn will actively expand its EV business in North America and work more comprehensively with traditional and start-up car makers," Liu said.

Foxconn, formally called Hon Hai Precision Industry Co Ltd, has acquired the former General Motor Co plant in Lordstown, Ohio and has also hired a former Nissan executive, Jun Seki, to lead its efforts in EV business expansion.

Liu said revenue from EV components is expected to rise sharply to between T$50 billion and T$100 billion this year from T$20 billion last year. In Ohio, Foxconn will focus on battery packs for EVs, while Wisconsin will produce energy storage system (ESS) battery cells and battery packs, he said.

The company has also been expanding production of EV components in Mexico.

Net profit for the October-December quarter fell 10% to T$40 billion ($1.3 billion) from a year earlier, the company said, in line with analysts estimate.

The company said previously that production has returned to normal in Zhengzhou, which produces the majority of Apple's premium models, including the iPhone 14 Pro.

Apple last month forecast its revenue would fall for a second quarter in a row, but that iPhone sales were likely to improve as production had returned to normal in China after the COVID-related shutdowns.

($1 = 30.5870 Taiwan dollars)

(Reporting by Yimou Lee, Sarah Wu, Faith Hung and Ben Blanchard; Writing by Ben Blanchard and Brenda Goh; Editing by Muralikumar Anantharaman, Jamie Freed, Elaine Hardcastle)

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