Apple Partner Hon Hai’s Profit Misses Despite iPhone Rebound

(Bloomberg) -- Hon Hai Precision Industry Co. reported its third consecutive quarterly profit miss, after Apple Inc.’s main assembler succumbed to a persistently weak Android phone market.

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The company known as Foxconn, which makes most of Apple’s signature devices, reported net income of NT$12.8 billion ($417 million) for the first three months. That compared with the NT$29.8 billion average analysts’ estimate. Revenue rose almost 3% for the period, based on monthly sales figures.

Stronger-than-expected iPhone sales during the March quarter failed to completely offset weakness in overall Android phone-making. Foxconn and the broader smartphone industry continue to struggle with weak demand as consumers brace for a potential recession. Global shipments of smartphones running the Android system are projected to decline 1.2% this year due to weak demand and ongoing macroeconomic challenges, research firm IDC warned. Foxconn counts a plethora of Android phone makers among its clients, from Alphabet Inc.’s Google to Xiaomi Corp.

Foxconn Chief Financial Officer David Huang also blamed some of the underperformance on its loss-making Sharp Corp. division, saying he doesn’t rule out a management reshuffle there, without elaborating. The Japanese display maker reported a net loss of ¥253.6 billion ($1.9 billion) for the March quarter, exceeding estimates for ¥36.42 billion.

Longer-term, Foxconn also faces setbacks in its EV ambitions. 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.

Recovering demand for servers could shore up Foxconn’s growth as the year advances, Bloomberg Intelligence analyst Steven Tseng wrote ahead of the earnings release. “Server revenue could have continued to grow due to the popularity of chatting and resilient demand among cloud-service providers.”

Foxconn has diversified its supply chain by expanding capacity outside of China, which has been its primary location for assembly almost since Steve Jobs introduced the device in 2007. The US company tripled iPhone production in India to $7 billion in the past fiscal year through help from its main assemblers, including Foxconn.

(Updates with CFO’s comments on Sharp in the fourth paragraph)

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