Foxconn 985m Q2 – Foxconn Reports Q1 Net Profit Rose 5% Yoy to ~foxconn 985m Q2 but Warns Q2 Revenue Could Slip Due to Rising Inflation, Cooling Demand, and Escalating Supply Chain Issues
As consumers continue to eagerly buy new products such as Apple’s new iPhone 4S, many are wondering if the iPhone 5 will be enough to keep Foxconn happy. The company recently released its earning report for the first quarter of fiscal year 2012, in which total revenue came in at 25.688 billion Yuan (US$4.18 billion). The company’s net profit was 2.389 billion Yuan, an increase of 5.8% from last year, but the company’s revenue growth is shrinking as it struggles with rising inflation and increasing supply chain issues .
Foxconn has been moving to cut costs and make more efficient business moves due to its massive debt burden. It has added 700,000 new workers in the past 18 months and plans to hire another 800,000 by the end of this year. This has constrained the company’s profit margins, and analysts believe the company remains vulnerable to further downside.
The improving economy in China has not hurt Foxconn as much as might have been expected. The effects of last year’s natural disasters created a backlog of demand for components that is just now being worked through. Furthermore, the current slowdown in growth that some feel will be permanent is being offset by increased purchasing power stemming from local government subsidies to increase consumption.
Foxconn’s most immediate concerns are rising costs for its supply chain and product warranty. A few examples of this can be found on the company’s website. Foxconn has tied a review of its supplier’s labor conditions to Foxconn’s new three-year warranty that the company is introducing this month. Foxconn claims this policy will allow it to improve worker conditions. However, one of the company’s biggest competitors has sued Foxconn in a bid to shut down the company’s operations in China, and labor activists are pushing to further protest Foxconn’s practices.
The Japanese component supplier Renesas Electronics Corp. is seeking compensation for losses incurred from suspended sales that have resulted from Foxconn’s notorious work practices and corrupt labor practices. Thanks to a high volume of product recall claims, Foxconn is making an effort to improve its product quality by hiring hundreds of quality control inspectors. But the company has admitted that this will add costs and hurt margins.
Foxconn continues to face problems with its massive scale and supply chain, which analysts expect will be the company’s biggest challenge moving forward. The company is employing millions in China, which means that it is feeling the effects of local inflation and its own inability to effectively manage its supply chain.
Foxconn can help itself to some extent by shrinking its workforce, but analysts believe that this would do more harm than good. Foxconn already has a high turnover rate thanks to the harsh conditions under which it employs workers, and reducing the workforce would increase this rate. Instead, Foxconn should look for ways to improve its worker retention if it is serious about reducing costs and raising profit margins.
