Taiwan-based Foxconn posted a drop of 39% in quarterly profit, which was much worse than was expected, as the assembler for products by Apple saw its margins become squeezed by bottlenecks in production for the new iPhone X.
While Apple’s 10th anniversary iPhone model has seen a struggle by parts suppliers with specifications for the new features on the phone such as edge-to-edge display, facial recognition, the red-hot demand for the handset, which earlier this month went on sale, is expected to create a rapid recovery for the Taiwan-based Foxconn.
Apple predicted strong sales for the holidays and said it was happy with the way manufacturing of its latest phone was progressing. However, most analysts believe it will take until 2018 or even as long as early spring prior to the tech giant being able to meet demand.
The largest contract electronic maker in the world, legally known as Hon Hai Precision Industry Company, said net profit for the third quarter fell to just over T$21 billion equal to $700 million, about 42% less than the estimate on Wall Street.
It was a first drop for a quarter by Foxconn in over a year and is the largest drop in profit for one quarter since 2009 said company officials, Revenue at Foxconn ended flat.
An analyst in Hong Kong said that a recover is expected during the fourth quarter due to utilization getting better thanks to the ramp up of the iPhone X.
Therefore, said the analyst November and December should help, but still will feel an impact overall during the final quarter.
Some analysts attributed the slide in profit to the yuan’s appreciation as well as to idle labor because of the later than normal launch of the new smartphone by Apple.
Although sales kicked off for the iPhone 8 in September, which was in line with previous new iPhone launches, the demand appeared lackluster to many waiting patiently to buy the iPhone X.
Foxconn is believed to be the only maker of the iPhone X and makes the majority of iPhones at large facilities across China. It has been estimated by a financial company that 67% of all iPhones sold by Apple are made by Foxconn, with the remainder made by Pegatron Corp and Wistron Corp. both from Taiwan.
Foxconn shares fell by up to 2.8% Wednesday underperforming the broader market in Taiwan which was off by 0.5%.
The stock, which has a worth of $61 billion, has dropped 10% during the last three months, pressured in part by weak sales of the iPhone 8 and the production concerns for the iPhone X.