iPhone Maker Hon Hai Cuts 2020 Outlook After Virus Outbreak
(Bloomberg) -- Hon Hai Precision Industry Co. cut its 2020 revenue outlook after deciding to impose strict quarantines at its main iPhone-making base, a measure to guard against the coronavirus outbreak that may hurt Apple Inc.
Hon Hai, which makes the vast majority of the world’s iPhones from the central Chinese city of Zhengzhou, officially resumes production Feb. 10 after an extended Lunar New Year break. But the company said in a statement that workers returning from outside Henan province -- site of its main factory -- will be sequestered for 14 days. Any staff reporting to work who reside within the province itself will be isolated for 7 days.
The lost production prompted Hon Hai, known also as Foxconn, to slash its forecast for revenue growth in 2020. The company is now projecting a sales increase of 1% to 3% this year, Chairman Young Liu told Bloomberg News in a text message. That’s down from a Jan. 22 forecast of 3% to 5%, before the epidemic spread around the globe, and lags the 5.4% average of analysts’ projections.
The contagion is expected to disrupt Apple’s carefully calibrated production chain centered on China, while dampening consumer demand and overall economic growth. As China’s largest private employer and a key partner to many of the world’s most recognizable consumer brands, Hon Hai has become a high-profile symbol of how the outbreak could disrupt the world’s supply of made-in-China electronics.
“Given current market conditions, we are lowering to 1%-3%,” Liu replied when asked about whether Hon Hai will cut its original sales growth forecast for this year.
Read more: Apple Suppliers Aim to Resume Full China Production Feb. 10
Hon Hai, which makes products for companies from HP Inc. to Sony Corp., said Tuesday it still expects to be able to restart facilities throughout China on schedule. Key suppliers with major Chinese operations such as Quanta Computer Inc., Inventec Corp. and LG Display Co. have also said they would go back to work next week.
But while Chinese officials and companies have targeted Feb. 10 as the date to resume work across much of the country, doubts about the timing have grown in recent days as the virus death toll rises, workers find themselves stuck in municipal lockdowns and the transport of people and goods has been hampered.
What Bloomberg Intelligence Says
Hon Hai’s lower 2020 sales growth outlook of 1-3% vs. 3-5% just a week ago likely reflects the severity of disruption to its operations from the coronavirus outbreak, in our view. The NT$111 billion reduction in sales at the midpoint of the range vs. the prior midpoint is equivalent to one week of revenue, accounting for the extended factory shutdown imposed by the Chinese government.
- Matthew Kanterman, analyst
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Apple in January issued a wider-than-usual sales forecast to reflect what Chief Executive Officer Tim Cook called “uncertainty” caused by a virus outbreak in one of its most important markets.
Smartphone sales -- particularly in China -- are expected to take a big hit from the coronavirus outbreak after government-imposed containment measures snarled logistics and emptied out stores. Hon Hai’s Hong Kong-listed unit FIH Mobile Ltd. makes phones for Xiaomi Corp. and Huawei Technologies Co.
Research firms vary in their estimates of how big the shipments drop-off will be, reflecting the still-developing nature of the virus outbreak -- but they agree it will hurt. Strategy Analytics forecasts a 32% decline in Chinese shipments in the first quarter, to 60 million from roughly 89 million shipments a year earlier. Canalys, starting from a similar estimate for 2019, scythes its expectations down to 42.5 million shipments.
Hon Hai’s shares stood largely unchanged Wednesday after having slid about 11% since a broader Asian market selloff began in mid-January.
Read more: Virus Outbreak May Halve China Phone Shipments in First Quarter
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