Taiwan Hon Hai to have split U.S., China supply chains as it bounces back in Q2

12, Aug. 2020

Hon Hai Precision Industry Chairman and CEO Liu Young-way speaks at Q2 earnings conference in New Taipei City on Aug. 12, 2020. (Image from streaming teleconference)
Hon Hai Precision Industry Chairman and CEO Liu Young-way speaks at Q2 earnings conference in New Taipei City on Aug. 12, 2020. (Image from streaming teleconference)

TAIPEI, NNA - Hon Hai Precision Industry Co,, a key supplier to Apple and other tech giants, plans to split its supply chain to serve the United States and Chinese markets separately as it springs back from Q1's record profit slump.

After it was hit by the COVID-19 crisis, the Taiwanese company reported a much better net income of NT$22.9 billion ($779 million) in the second quarter ended in June, helped by higher demand for iPads and MacBooks.

But disruptions caused by the coronavirus pandemic and U.S. tariffs arising from trade spat with China are forcing Hon Hai to create more production bases elsewhere.

Known also as Foxconn, the company has expanded its presence to the United States, Mexico, Brazil and Southeast Asia, as it prepares to set up two supply chains, said Chairman and CEO Liu Young-way on Wednesday as the company announced its Q2 results.

Hon Hai has increased its production capacity outside China to 30 percent, up from 25 percent since last June. Further growth is expected as it moves more production to Southeast Asia, India and other regions.

Liu told reporters, “No matter if it’s India, Southeast Asia or the Americas, there will be a manufacturing ecosystem in each.”

Hon Hai is one of Apple assembly partners that are planning to expand operations in India, to assist the iPhone maker grow its presence in the huge growing market.

While China will continue playing a key role in group businesses, the country’s “days as the world’s factory are done,” said Liu.

As production resumed at its factories, the group performed even better than analysts' Q2 estimates, posting a revenue of NT$1.13 trillion. This was supported by a demand for home computing items like iPad and Mac.

Although the revenue was a 3 percent drop from a year earlier, group pre-tax profit rose 22 percent to NT$34.87 billion. This translated into earnings per share of NT$1.65, up from NT$1.23 last year.

But the group expects Q3 sales to decline by double digits from the previous year mainly because of Apple delaying its iPhone launch this year, CFO David Huang told an earnings conference on Wednesday.

Looking forward, Chairman Liu Young-way highlighted four major growth areas for the group: server, components, semiconductor and automotive parts.

“Server sector will contribute nearly NT$1 trillion with the largest shipment in Taiwan this year, and we expect further growth next year, only having to take uncertainties caused by the COVID-19 pandemic into consideration,” said Liu.

Parts and components, which also contributed nearly NT$1 trillion in 2019, will continue to bolster the group’s growth, he added.

Semiconductor-related products generated nearly NT$70 billion in 2019, while auto parts and components contributed about NT$9.5 billion in revenue in 2019. “We expect our auto-related sector will reach NT$1 trillion by 2025,” said Liu.

In the long run, the company aims to transform into an advanced high-tech company encompassing artificial intelligence, semiconductor, next-generation information and communications technology, cybersecurity and quantum computing, electric vehicles, digital healthcare and robots.

Based on each business sector’s progress, Liu said he is confident the group will fulfill its target of gross margin reaching 10 percent in 2025.

The company is confident in securing its position as the world’s largest electronics contractor even though it is facing a growing challenge from Chinese rivals.

One of them, Luxshare Precision Industry Co., will become the first Chinese homegrown iPhone assembler after sealing a deal in July to buy an Apple handset production plant from Taiwanese rival Wistron Corp.

In response to this, Liu said, “We will continue to reinforce our growth momentum, create versatile product lines and maintain leadership with new technologies.”