Apple Supplier's Net Falls On iPhone Problems -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 15, 2017).

BEIJING -- Foxconn Technology Group, the world's largest contract manufacturer of electronics, posted a 39% drop in quarterly net profit amid production challenges dogging the flagship product of its biggest customer, Apple Inc.

Apple's iPhone X, which Foxconn assembles in China, went on sale Nov. 3, after it was plagued by a series of production problems among Apple's suppliers. The troubles were centered on new technologies packed into the device, the most expensive iPhone ever, with a starting price of $999 and features including an edge-to-edge display and facial recognition.

Taiwan-based Foxconn, known formally as Hon Hai Precision Industry Co., posted 21 billion New Taiwan dollars (about $695.5 million) in net profit in the three months to September, its statement showed Tuesday. That was lower than the NT$35.6 billion average estimate of analysts polled by the S&P Global Market Intelligence. The 39% decline in profit from the same period a year earlier was Foxconn's largest drop since 2008, during the global recession, according to data from S&P.

Quarterly revenue in the latest period was NT$1.1 trillion, nearly flat from a year before.

Hon Hai doesn't give guidance or hold earnings conferences. Its shares closed down 0.9% on Tuesday.

Apple hasn't disclosed sales numbers for the iPhone X. The phone made its debut with long lines at Apple stores around the world and shipping delays of five-to-six weeks, showing that the company hadn't ramped up production enough to meet demand. The delay had shrunk to three to four weeks in the U.S. as of Tuesday afternoon.

The iPhone X is one of a trio of new iPhones that Apple released this year. The company started selling the lower-cost iPhone 8 and 8 Plus six weeks earlier.

Chief Executive Tim Cook said when Apple reported quarterly results this month that production of the iPhone X is "going well" but declined to say when supplies would catch up with demand.

Mr. Cook acknowledged that forecasting demand for the devices has been challenging. "If we would have shipped all at once, that would have been our preferred scenario, obviously, but we didn't have that choice," Mr. Cook said in an interview at the time.

Suppliers and contract electronics makers that rely heavily on Apple often are hit when production bottlenecks emerge in Apple products.

Pegatron Corp., which assembles the iPhone 8, said last week that its quarterly net profit fell 32.4%, which analysts attributed to components shortages and labor issues.

The production problems of the iPhone X included a shortage of components used in the facial-recognition system and manufacturing difficulties over the organic light-emitting diode screens, The Wall Street Journal has reported.

Production of the iPhone X is likely to rise in coming months. Apple's production volume rose around 3% in the third quarter to around 44 million iPhones from the previous quarter, research firm TrendForce said in a note. In the fourth quarter, that is expected to jump to 81 million phones, with the iPhone X expected to account for a third of that, TrendForce said.

--Liza Lin in Shanghai contributed to this article.

Write to Yoko Kubota at yoko.kubota@wsj.com

(END) Dow Jones Newswires

November 15, 2017 02:47 ET (07:47 GMT)