IPhone assembler Hon Hai expects muted sales in 2023 as electronics demand weakens

Hon Hai Precision Industry Co now expects 2023 sales to fall after forecasting a flat revenue, warning about the demand for the devices it makes for Apple and other global firms.

The Taiwanese company said it now sees its sales falling in the current quarter as well as for the year overall, with most of its main business segments in contraction.

Hon Hai on Monday reported a net income of NT$33 billion ($1 billion) versus the NT$25.93 billion average of analyst estimates. Its operating profit missed estimates. It earlier posted a 14 percent decline in revenue for the period, its first drop since the final three months of 2021.

Hon Hai’s results underscore expectations of a worsening market for global electronics, as consumers and corporations hold off on spending during an economic downturn. From Apple to Qualcomm Inc. and Taiwan Semiconductor Manufacturing Co, the tech industry’s bellwethers have warned that a downturn that set in after the pandemic may last longer than initially anticipated.

Apple, Hon Hai’s top customer, in August, telegraphed its longest sales slump in decades, the result of crumbling demand for phones, computers and tablets worldwide. China, the world’s biggest market for those devices, is mired in an economic funk that some economists say may worsen over time.

Apple is asking suppliers to produce about 85 million units of the iPhone 15 this year, roughly in line with the year before, Bloomberg News has reported. That’s aiming to hold shipments steady despite tumult in the global economy and a projected decline in the overall smartphone market. But the move is likely to increase revenue overall because Apple is considering raising the price for Pro models.

Hon Hai’s revenue could be affected by muted iPhone growth in 2023 and potential margin pressure due to residual lockdown impact, less-favourable economies of scale, and capacity relocations. Yet substantial scale benefits and in-house component supplies could enable Hon Hai to cope with slower iPhone momentum and cost pressure better than peers.

Foxconn is now expanding a steady diversification from China to mitigate the risks of US economic and technology sanctions, a move that could initially impact margins. The Apple partner’s preparing new spending for India north of $1.2 billion, a big outlay for a Taiwanese company that traditionally assembles most devices for Apple and other US brands from central and southern China.

Longer-term, Foxconn harbours EV ambitions though progress toward that goal has been choppy. A $170-million partnership with Lordstown Motors Corp. fell apart after the Taiwanese company threatened to withhold funding. That incident underscored the challenges Foxconn faces as soaring costs erode already-thin margins in its labor-intensive electronics assembly business.