Foxconn Raises Full-Year-Outlook Despite Rising Inflation, Global Chip Shortage

Taiwan's Foxconn, the world's largest contract electronics maker, raised its full-year business outlook on Monday thanks to strong sales of smartphones and servers despite concerns of slowing demand due to rising inflation.

Like other global manufacturers, the Taiwanese firm has grappled with a severe shortage of chips, which has hurt smartphone production including for its major client Apple, partly due to COVID-19 lockdowns in China.

But the company said in a statement late on Monday that June sales jumped 31 percent from a year earlier to a record high for the month, thanks to appropriate supply chain management and rising sales of consumer electronics. Smartphones make up the bulk of its revenue.

Foxconn's better-than-expected June sales come at a time when investors are concerned about slowing tech demand during a downturn in major markets due to high inflation and the war in Ukraine.

Chip stocks across the world tumbled on Friday after memory chip maker Micron Technology forecast on Thursday significantly worse-than-expected revenue for the current quarter and said the market had "weakened considerably in a very short period of time."

Foxconn said it was optimistic about its business in the third quarter, adding it could see "significant growth" compared with a year earlier.

For 2022, Foxconn said the outlook has improved compared with earlier expectations for no growth, without providing details.

The company, formally called Hon Hai Precision Industry, said it has seen double-digit yearly growth in sales from servers and telecommunications products so far this year.

The company has said that COVID-19 controls in China only had a limited impact on its production as it kept workers on-site in a "closed loop" system.

Analysts at Daiwa Capital Markets in Taipei said in a report that demand for servers from US-based cloud service providers helped propel double-digit growth for the sector. They expected Foxconn's operating profit to grow 12-19 percent this year.

Morgan Stanley analysts said Foxconn's upbeat guidance for the third quarter showed that strong demand for cloud servers and iPhone assembly will continue.

The company's shares rose about 3 percent in Tuesday morning trade, outperforming the broader market which was up around 1 percent. They have dropped nearly 1 percent so far this year, giving the firm a market value of $46.52 billion (roughly 3.5 lakh crore).

© Thomson Reuters 2022