Last week, Asian financial business media featured the headline that global contract manufacturer Foxconn Technology, also referred to as Hon Hai Technology Group,  experienced a significant milestone, its first-ever revenue decline since going public in 1991.

Foxconn is of course well-known as Apple’s prime assembler of iPhonesFoxconn

While total full-year revenues declined 2.8 percent, net profits were up 1.2 percent from 2015, according to a filing with the Taiwan Stock Exchange. That is a testament to rigid cost controls and the application of increased automation in its existing manufacturing operations. A report from the Nikkei News Agency indicates that the contract manufacturer’s December revenues grew 9.76 percent year-on-year although no detailed information related to Q4 was disclosed by Foxconn last week.

High-tech and consumer electronics Industry observers attribute Foxconn’s revenue decline directly to falling iPhone sales along with Apple’s decision to shift iPhone assembly to other contract manufacturers. We recently posted that Apple will begin production of iPhones in India utilizing Wistron as the CMS provider. Pegatron also serves as a CMS for iPhone 7 models.

Nikkei cites Vincent Chen, head of regional research at Yuanta Investment Consulting as indicating that for 2016, iPhone shipments declined to 207 million, from 236 million in the prior year. Chen now predicts that Foxconn’s revenues will increase 5 to 10 percent due the healthier demand generated by this year’s tenth-anniversary iPhone 8 model.

Readers will also recall from our various other Foxconn focused blogs that the company has been actively pursuing a strategic shift away from its primary dependence on Apple and to diversify into other upstream high-tech component areas as well as in branded consumer electronics products of its own. In 2016, the manufacturer completed its acquisition of Sharp Corp., and is now reportedly actively exploring an acquisition of Toshiba Corp’s semiconductor business. Earlier this year there was a report that Foxconn was looking to construct a $7 billion LCD production facility in the United States. Like all things related to Foxconn, it is often an on-again or off-again process.

Not all Apple suppliers have the where with all to pivot away from a high dependence on Apple, and of-late, the consumer electronics giant continues to pursue supply chain segmentation strategies that source lower-cost contract manufacturers and suppliers. However, a larger concern obviously centers on Trump Administration calls U.S. corporate tax reform that features a form of import taxes.  As we all know, Apple’s supply chain is for the most part, highly Asia-centric. If the U.S. Congress were to adopt a form of a value-added tax related to imports, that would be a different impact as-well.

While Foxconn will bounce back from this revenue shortfall model, it will be as a more diversified participant in the high-tech and consumer electronics supply chain value-chain. Contract manufacturing product margins alone are far too challenging not to do otherwise.

Bob Ferrari

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