Foxconn, Sharp and Other Apple Suppliers See Earnings Take Hits

Foxconn, which bought Japanese consumer-electronics giant Sharp for $  3.5 billion, said consolidated revenue fell 4.2% in the first quarter. ENLARGE
Foxconn, which bought Japanese consumer-electronics giant Sharp for $ 3.5 billion, said consolidated revenue fell 4.2% in the first quarter. Photo: Zuma Press

Apple Inc.’s falling sales are reverberating along the supply chain in Asia with iPhone component makers reporting weak earnings and cautious forecasts.

It marks the end of an era of easy growth for not only Apple, but for the multibillion-dollar global supply chain that makes iPhones and other gadgets.

As smartphone growth slows with the sector’s maturation, suppliers say that they don’t see another product category on the immediate horizon that can be a major growth driver.

“We are all closely watching new areas, like the Internet of Things and automotive electronics,” said Charles Lin, chief financial officer of Pegatron Corp., a secondary iPhone assembler for Apple based in Taiwan.

“But so far there is nothing nearly approaching the scale of smartphones.”

Last month, Apple posted its first quarterly decline in revenue in 13 years, as iPhone sales slowed. Apple’s performance reflected the weakness in the broader smartphone sector: 2015 was the last year for double-digit expansion of the global smartphone market, with this year’s growth rate expected to fall to 5.7%, according to market research firm IDC.

The expected launch of the next-generation iPhone should boost suppliers in the second half of the year, although analysts say it is unlikely to match the rapid growth of past years.

Foxconn Technology Group, Apple’s main iPhone assembler, said Thursday that its first-quarter net profit fell 9.2% to 27.58 billion New Taiwan dollars (US$ 847.1 million) from NT$ 30.39 billion a year earlier. Pegatron’s first-quarter net profit fell 35.1% from a year earlier to NT$ 4.1 billion.

Some upstream component suppliers fared worse. Sharp Corp., which supplies screens for iPads and other gadgets, said Thursday that its display unit fell into an operating loss of 129.1 billion yen (US$ 1.19 billion) for the fiscal year ended in March from a ¥500 million profit a year earlier.

Chief Executive Kozo Takahashi said orders from major smartphone makers have slowed drastically in the final quarter of the year.

Japan Display Inc., also a screen provider for Apple, said Thursday that its net losses widened in fiscal year 2015 to ¥31.8 billion from ¥12.3 billion.

Last month, Sony Corp. Chief Financial Officer Kenichiro Yoshida said his company—which supplies image sensors used in cameras—had overestimated demand, although he noted orders should pick up in the second half of the fiscal year that started last month.

Sony Corp.’s device unit, which includes image sensors that the Japanese firm supplies to Apple, recorded an operating loss of ¥28.6 billion in the recent fiscal year, a sharp drop from a year-earlier profit of ¥89 billion.

Largan Precision Co., a Taiwanese company that makes camera modules for iPhones and other high-end smartphones, saw net profit fall 18% in the first quarter.

Japan’s Nidec Corp., which makes “haptic” components used for Apple’s ForceTouch function in its phones and watches, said last month that it had overestimated market demand, with operating profit for the quarter coming in at ¥30.5 billion, ¥6.5 billion below what it expected.

Electronics suppliers had gone through a similar challenge when the personal computer market slowed, said UBS analyst Arthur Hsieh. But they made a relatively easy transition to making smartphones, after the first iPhone was launched in 2007.

This time, it isn’t yet clear what the next growth driver will be, with new technologies such as virtual reality, smartcars and Internet-connected appliances all appearing promising, but still early-stage, he said.

“We are in a transition period,” Mr. Hsieh said.

Write to Eva Dou at [email protected] and Takashi Mochizuki at [email protected]


WSJ.com: US Business

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