Here’s Why Apple Supplier Foxconn Is Ramping Up Investments Outside China

Apple supplier Foxconn on Wednesday said it plans to ramp up investment outside of China and efforts to attract automakers to its contract manufacturing business, as the company reported weaker demand for consumer electronics.

Foxconn, which assembles around 70 percent of iPhones, has been diversifying production away from China, whose strict COVID restrictions disrupted its biggest iPhone plant last year. The company also seeks to avoid a potential hit to its business from mounting trade tensions between Beijing and Washington.

“It is customer demand that guides our considerations on how to deploy our production capacity in the ICT field,” Foxconn Chairman Liu Young-way said on an earnings call, referring to information and communications technology.

He said expansion was needed in countries such as the US, Vietnam, India, Mexico and China, “in response to customer and supply chain adjustments”.

Liu said currently about 70 percent of the company’s revenue is derived from products made in China, but “going forward the proportion of overseas region will continue to increase.”

Foxconn did not say how much its investment would increase by this year.

Weak consumer demand

The world’s largest contract electronics maker expected revenue for the first quarter and full year to be flat, as weak demand for consumer electronics would be offset by significant growth in computing, cloud, networking and component products.

More than half of Foxconn’s revenue comes from consumer electronics.

“We maintain a relatively conservative view towards the smart consumer electronics and think they might decline slightly,” Liu said, pointing to factors including last year’s high base as well as inflation and the slowing global economy.

Foxconn grabbed headlines in November when curbs to control COVID-19 prompted thousands of workers to leave its massive factory in China’s Zhengzhou city, disrupting production ahead of Christmas and January’s Lunar New Year holidays.

Foxconn, which wants to replicate with electric vehicles the success it has had with the iPhone, said it was both approaching and being approached by many automakers.

“Foxconn will actively expand its EV business in North America and work more comprehensively with traditional and start-up car makers,” Liu said.

Foxconn, formally called Hon Hai Precision Industry, has acquired the former General Motor plant in Lordstown, Ohio and has also hired a former Nissan executive, Jun Seki, to lead its efforts in EV business expansion.

Liu said revenue from EV components is expected to rise sharply to between TWD 50 billion (roughly Rs. 13,500 crore) and TWD 100 billion (roughly Rs. 26,900 crore) this year from TWD 20 billion (roughly Rs. 5,400 crore) last year. In Ohio, Foxconn will focus on battery packs for EVs, while Wisconsin will produce energy storage system (ESS) battery cells and battery packs, he said.

The company has also been expanding production of EV components in Mexico.

Net profit for the October-December quarter fell 10 percent to TWD 40 billion (roughly Rs. 10,800 crore) from a year earlier, the company said, in line with analysts estimate.

The company said previously that production has returned to normal in Zhengzhou, which produces the majority of Apple’s premium models, including the iPhone 14 Pro.

Apple last month forecast its revenue would fall for a second quarter in a row, but that iPhone sales were likely to improve as production had returned to normal in China after the COVID-related shutdowns.

© Thomson Reuters 2023