Foxconn earnings comfortably beat expectations during the second quarter of the year, coming in at NT$33.3B ($1.1B) against consensus projections of NT$30.8 ($1.02B).

Strong demand for the iPhone 13 made a direct contribution to the company’s income, of course, but it also indirectly helped with assembly of products for Sony and Dell …

Foxconn earnings indirectly helped by Apple, too

Around half of Foxconn’s business comes from Apple, and that gives the company a great deal of power with suppliers. It can use its scale to negotiate better deals across all of its production.

However, Bloomberg notes that the company is still working on diversification in order to reduce its dependence on the Cupertino company.

Both cloud computing and electric vehicles are huge growth industries, in contrast to the smartphone market, which has largely plateaued.

Apple logged strong quarterly results, particularly from the iPhone, despite lingering effects from the pandemic. While that reassured investors concerned about a slowdown, worrying signs remain, with Apple’s Mac, iPad and its wearables division posting sales declines from a year ago.

Given the potential for a downturn in consumer appetite for gadgets, the Taiwanese company has been expanding its revenue from corporate customers, logging solid sales in its cloud and network computing products in July.

Hon Hai is also making a play to expand in electric vehicles. The world’s largest contract manufacturer has targeted 5% market share in EVs in 2025, helped by its acquisition of Lordstown Motors Corp.’s electric pickup trucks factory in Ohio. The two partners will announce a new vehicle project in the fourth quarter, Lordstown said last week.

Foxconn’s results are a testament to the company’s ability to continue work at a near-normal pace through citywide COVID-19 lockdowns, thanks to a closed-loop production process.

Closed-loop production means:

  • Companies provide dormitory accommodation within the overall campus.
  • Workers remain on campus for extended periods, typically one month.
  • No one enters or leaves the plant without an on-the-spot negative test.
  • Anyone testing positive on attempted entry is sent to a quarantine center.

This is obviously tough on workers, who are unable to see their families and friends for weeks at a time, and has previously led to a worker revolt at a Quanta plant in Shanghai. However, it has enabled the company to keep its plants operating at close to normal capacity throughout lockdowns.

Taiwan security officials banned Chinese chipmaker stake

One thing that is not going to plan for Foxconn is its $800M investment in Chinese chipmaker Tsinghua Unigroup. We noted when the deal was announced that it appeared to have been done without the necessary government approval, and this has indeed proven to be the case.

The Financial Times reports that national security officials in Taiwan have asked Foxconn to unwind the deal. Reuters notes that this is prompted by fears that Chinese companies would steal chip designs and other intellectual property obtained through contract manufacturing.

Foxconn has not, at this point, been formally barred from proceeding with the deal. At this point, the company has received what amounts to an expression of disapproval, and a request to abandon the investment plan. However, sources cited by the FT suggest that government approval is now extremely unlikely given increased tensions between Taiwan and China.

Taiwan, the world’s largest contract electronics maker, has become increasingly cautious about China’s ambition to boost its semiconductor sector. It has proposed new laws to prevent what it says is China stealing its chip technology, amid rising concerns in Taipei that Beijing is stepping up its economic espionage.

The island’s government prohibits companies from building their most advanced foundries in China to ensure they do not offshore their best technology.

Photo: Frank de Kock/Unsplash