IPhone X Production Woes Hit Foxconn Profit

Reuters

Taiwan's Foxconn reported a 39% slide in quarterly profit, far worse than expected, as the assembler of Apple products saw margins squeezed by production bottlenecks for the iPhone X.

Another big suspected barrier to higher production yields is Face ID - the new biometric authentication system which does a 3D scan of a user's face and replaces the fingerprint scanner (Touch ID) on the iPhone X. At the end of October, Bloomberg reported that Apple supposedly instructed suppliers to reduce the accuracy of Face ID in order to increase supply, a claim which was subsequently denied by Apple.

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.

Apple has predicted strong holiday sales and said it is happy with how manufacturing of the iPhone X is progressing, although most analysts think it will likely take until next year or early spring for the tech giant to meet demand. Foxconn hasn't experienced such a quarter-over-quarter decline since the global recession of 2008.

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.

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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. "So November/December should be better but still will be impacted overall in the fourth quarter".

It would also seem that the biggest issue was due to Face ID, which Apple suddenly made a decision to adopt, catching suppliers off-guard.

Foxconn profitability suffered as it could not assemble as many iPhone X devices as it wanted to as supply for components was so constrained.

Shares in Foxconn fell as much as 2.8% in Wednesday trade to their lowest level since late September, underperforming the broader Taiwan market which was down 0.5%.

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