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Foxconn faces covid logistics disarray in China

REUTERS

Most of Foxconn’s factories in China have been running under a bubble-like system, said Chairman Young Liu on Thursday. The Taiwan-based contract manufacturer has relied on its supply-chain management expertise to keep production going even during Covid outbreaks, he said.

“Our team has put a lot of effort into arranging accommodation for employees and communicating with the local government," Mr. Liu said on an earnings call.

Apple Inc., Foxconn’s biggest customer, said last month that the Covid outbreaks in China threaten to hinder sales by as much as $8 billion in the current quarter. Chief Executive Tim Cook said Apple’s supply constraints mainly stemmed from Shanghai, much of which has been under a lockdown for more than a month, and the nearby regions, where logistics have been disrupted.

Foxconn runs Apple’s biggest iPhone production site, located in China’s central Henan province. There, Foxconn has been following a closed-loop system to keep tens of thousands of workers and other staff in or around the factory, a system that has become the standard among manufacturers in China to continue manufacturing during Covid outbreaks.

In March, Foxconn had to suspend operations at its factories in Shenzhen, another site where it produces Apple products, after a Coronavirus outbreak in the southern city.

In April, the company, formally known as Hon Hai Precision Industry Co., posted a 2.8% drop in revenue. It expects revenue to be flat in the current quarter.

For the first quarter, Foxconn’s revenue rose 4.5% from a year earlier, while net profit rose 4.6% to 29.45 billion New Taiwan dollars, or around $989.6 million.

Hit harder than Foxconn is rival Pegatron Corp., the second-largest assembler of iPhones, which suspended production at its factories in Shanghai and nearby Jiangsu province last month. This week Pegatron said its April sales declined 19% from a year ago.

On Thursday, Pegatron posted a 39.6% decline in January-March net profit from the same period a year ago, while revenue rose 49.5%.

Others in the electronics sector also face fallout from China’s anti-Covid policies.

Sony Group Corp. said its estimate of revenue from its electronics segment for this quarter reflects an impact of around $230 million from lockdowns in China. It could face delays in procuring parts from Shanghai and nearby areas, where it expects the situation to normalize in three months or so, Chief Financial Officer Hiroki Totoki said Tuesday.

Panasonic Corp. also warned that the impact from the lockdowns in China would start to manifest in its performance over the coming months.

Separately, Foxconn said Thursday that it has closed a $230 million deal to acquire the cash-strapped electric vehicle maker Lordstown Motors Corp.’s Ohio factory, securing an automotive manufacturing base in the U.S.

The Lordstown factory deal is a key piece of Foxconn’s aggressive plan to become a major player in assembling electric vehicles, as well as supplying components like chips.

Foxconn and Lordstown, through a joint venture, plan to mass-produce electric pickup trucks at the plant from the second half of 2022, Lordstown said.

Lordstown said Foxconn would invest $100 million in the joint venture, including a $45 million loan to Lordstown. Mr. Liu said it would cost Foxconn roughly $500 million to alter production lines. It couldn’t be determined whether Foxconn’s $100 million investment into the joint venture was included in the $500 million figure Mr. Liu cited.

When asked if Foxconn would assemble cars for Apple, Mr. Liu said Foxconn has been in touch with “all the existing major EV makers and startups."

This story has been published from a wire agency feed without modifications to the text

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Dive Deeper:
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