A leading supplier to Apple Inc. and a dozen other tech giants plan to share the supply chain between the Chinese market and the US, declaring that China̵7;s time as a factory in the world is over due to the trade war.
Hon Hai Precision Co. Chairman Young Liu said it is gradually adding more capacity outside China, the main production base for the gadget from iPhones to Dell desktops and Nintendo Switch. The percentage abroad is now at 30%, from 25% last June.
The ratio will increase as the company – also known as Foxconn – moves more products to Southeast Asia and other regions to avoid escalating tariffs on Chinese-made goods headed to US markets, Liu told reporters after his company reported financial results.
“Whether it is India, Southeast Asia or America, there will be a manufacturing ecosystem in each,” Liu said, adding that while China will still play a key role in Foxconn’s manufacturing empire, “the country’s days as a factory in the world are done. “
The escalation of trade tensions between Washington and Beijing has pushed device makers to diversify their production bases away from China, and Liu last year said Apple’s most prized product, the iPhone, could be made outside of China if needed. The two countries remain in trade talks, but Liu’s comments confirm a growing expectation that the China-based electronic supply chain will fragment in the longer term.
Read more: Trump Tumult has gadget giants splitting along US-China lines
The Taiwanese company reported better-than-expected net income of NT 22.9 billion ($ 778 million) for the quarter ended June, boosted by increased demand for the iPad and MacBooks. Revenue was $ 1.13 trillion NT, but Hon Hai warned it expects its sales in the third quarter to fall in double digits compared to 2019 as Apple delays the launch of the iPhone this year.
Hon Hai is jumping from a record profit drop in the first quarter as production at its factories recovered and on-site housing orders spurred demand for home computer equipment. The pandemic is likely to boost sales of the iPad and Mac, even as store closures at Apple outweigh sales of the iPhone, Apple CEO Tim Cook said on July 31 after reporting quarterly earnings that garnered estimates. Apple accounts for half of Hon Hai’s sales.
Read more: Apple destroys revenue, IPhone estimates in pandemic demand
Although Apple has performed better, other Hon Hai customers have fallen less well. The Hong Kong-listed FIH Mobile Ltd subsidiary said in its earnings announcement on August 7 that while the new Huawei Technologies Co. phones. have been popular in China, they lost expectations elsewhere after US sanctions. Another key customer Xiaomi Corp. suffered a backlash in the Indian market amid rising tensions between China and the South Asian country. FIH lost $ 100 million in the first half.
Foxconn has tightened its traditional operations centered in China. Hon Hai is among Apple assembly partners planning to expand operations in India, potentially helping the iPhone maker increase its presence in the country to $ 1.3 billion and shift some of the US company’s supply chain outside China as a link between Washington and Beijing.
Chinese rivals are also posing a growing challenge. Local electronics titanium Luxshare Precision Industry Co. is about to become the first Chinese assembler of the Chinese house after signing an agreement in July to buy an Apple mobile phone manufacturing plant from Wistron Corp. While Hon Hai will hold assembly orders for the premium iPhone, Luxshare will eat into the mid-entry-level Apple handset business, wrote Fubon Secures analyst Arthur Liao in a July 23 note.
Foxconn will work in its component business to maintain technology leadership and also benefit from its long-term relationship with Apple, Liu said in response to questions from some analysts about Foxconn’s competitive strategy against the growing Chinese supplier.
The orders could be further affected after President Donald Trump issued an executive order banning U.S. residents from doing business with Tencent Holdings Ltd. WeChat. Annual iPhone shipments could plunge 25% -30% if Apple is forced to remove the app from its app stores around the world, TF International Securities analyst Kuo Ming-chi warned in an August 9 note.
(Updates with comments from the chairman from the first paragraph)
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