The world’s largest global contract manufacturing services (CMS) provider Foxconn Technology Group, and a bell weather for high tech industry manufacturing trending, reported relatively positive profitability performance for the September-ending quarter despite ongoing trade and tariff disruption occurring across high tech and consumer electronics supply and customer demand networks.

Net profit for the latest quarter exceeded analyst consensus estimates, and was reported as 30.7 billion New Taiwan dollars, approximately $1 billion, representing a 4.6 percent increase over the year earlier period. Added profitability was attributed to improving margins from specific operating subsidiaries. Consumer Electronics manufacturing

Total revenues of 1.3 trillion New Taiwan dollars, approximately $45.5 billion, representing a 0.9 percent increase over the year earlier period.

As readers are aware, Foxconn’s most influential customer is that of Apple, which reportedly accounts for over half of total revenues. The latter has experienced some slowdown in iPhone revenues which declined 9.2 percent in the recent September-ending quarter.

The Supply Chain Matters blog has previously highlighted reports indicating that Apple has been positioning contract manufacturer’s such as Foxconn, to begin to source upwards of 30 percent of Apple’s manufacturing capacity needs outside of China to mitigate any new tariff impacts. The timing of such sourcing changes remains fluid and could likely involve a market introduction of a newer model, lower priced iPhone in the Spring of 2020.

 

Outlook

According to a published Reuters report, Foxconn’s relatively newly appointed Chairman Liu Young-way told an investor conference that the company expects a “stabilizing global economic situation” in 2020 in respective consumer electronics and smart devices business segments. With that, his expectations were stated similarly as “a stabilizing modest annual revenue growth’ for the contract manufacturer.” Liu further indicated a goal to increase gross profits to more than 10 percent over the next 3-5 years from current levels of 6-7 percent. That would include a plan to support producing components for electric vehicles and digital health.

Such diversification efforts are directed at reducing the high dependency on Apple’s product cycles and overall declining iPhone sales.

One of the conundrums of high-tech and consumer electronics supply networks is the high margins and profitability garnered by major brands such as Apple, with single digit razon thin margin challenges constantly challenging respective contract manufacturer’s. Firms such as Foxconn have been exploring more lucrative, higher margin opportunities up and down high-tech product value-chains to insure long-term revenue and profitability growth. There should be little surprise that electric and autonomous vehicles are part of that targeted effort as is new forms of digital devices.

 

 

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