iPhone Supplier Foxconn Sees Sales Correction Amid Holiday Season: Bloomberg

Apple Inc's AAPL leading assembly partner Hon Hai Precision Industry Co Ltd HNHAF HNHPF, also known as Foxconn, expects the sales of gadgets like smartphones to fall sequentially this quarter, Bloomberg reports.

What Happened: The prediction raised concerns over chip and component shortages affecting iPhone production before the holiday season. It also poses doubt regarding Apple's ability to accomplish the pandemic-induced demand surge.

The semiconductor chip and component crisis are already weighing on the output of iPhone, gaming consoles amid the pandemic-driven demand surge from remote work, home-schooling, and entertainment.

The announcement shocked analysts as Q3 is often the peak production season for a global electronics industry.

Apple warned analysts regarding a component crisis in April and said in late July that supply constraints would affect the iPhone and iPad in the current quarter.

Why It Matters: In May, Hon Hai Chairman Young Liu said that component shortages would affect shipments by 10% this year. Liu said today that the higher sales reported in the previous quarter and product transitioning are likely to lead to a slight sequential sales decline in the consumer electronics unit and the total revenue. 

He estimated the component crisis to stretch till Q2 of 2022 with limited impact on Hon Hai.

Hon Hai's Q2 net income rose 30% Y/Y to NT$29.8 billion ($1.07 billion), beating the consensus of NT$25.7 billion, Reuters reports. Sales in the three months ended June rose 20% to NT$1.35 trillion.

Hon Hai agreed to acquire a mature 6-inch wafer plant from Macronix International Co and forged a chip joint venture with Yageo Corp to counter the crisis. It also focused on electric vehicles to diversify its business beyond Apple's gadgets which account for about 50% of its revenue.

Price Action: HNHPF shares traded higher by 1.5% at $7.95 on the last check Thursday.

Photo by Arnel Hasanovic on Unsplash