Today, while announcing its lower than expected fourth quarter profits, Apple’s go-to contract manufacturer Foxconn had some other bad news to reveal. Reuters reports that the company expects that the current shortages of chips and other materials it need for production could continue into next year. Foxconn Chairman Liu Young said, “The pandemic and the materials shortage could impact our performance going forward. That’s why we are being cautious.” The executive added that the impact from the shortages is “limited” impacting under 10% of client orders. Liu says that despite the issues, first quarter revenue will be “better than normal” thanks to strong sales of smartphones and other devices like tablets used to work from home because of the pandemic.
During the three-month period from October through December, Foxconn reported a net profit of $1.61 billion for a 4% year-over-year decline. The profit figure failed to meet the estimate of $1.78 billion created by averaging the estimate from 11 analysts. Foxconn CEO David Huang said that while smartphone business was strong, the company’s gross margin was negatively impacted by COVID-19. Revenue for the fourth quarter rose 15% on an annual basis led by a 15% revenue hike in consumer electronics. 63% of the unit’s sales came from smartphones. The 15% revenue gain did beat out the company’s own projection which called for Q4 gross to be in a range between -3% and +3% year-over-year.
Contract manufacturer Foxconn is suffering from material and chip shortages
The global chip shortage has affected the production of automobiles, smartphones and other devices. It hasn’t helped that the world’s top contract foundry, TSMC, is in a country (Taiwan) experiencing a severe drought. The lack of a typhoon last year brought on the shortage which has forced the foundry to arrange for 100 water tankers at a total cost of $100,000. Each ship carries 20 tons of water.
Foxconn, Pegatron and Wistron produce more than 200 million Apple iPhone units annually with Foxconn responsible for approximately 60% of the total.