Is Foxconn Finding Freedom From Apple?
It seemed like Foxconn had almost all of its eggs in the same basket, or at least about 50 percent of them. Though Foxconn doesn’t publish a split on how much revenue it gets from each company it manufacturers products for, analysts calculated that it got about $130 billion from the manufacturing it did for Apple in 2012. That amount was the equivalent of 50 percent of the company’s revenue for the year.
With such a significant amount of its revenue tied up with Apple, the ups and downs of the iPhone maker are very closely related to those of the iPhone assembler. After a decade of Apple’s profits going up year after year, Apple posted a profit decline in its fiscal second quarter, which ended March 30. Revenue for the quarter was up 11 percent year-on-year, reaching $43.6 billion, but profit was down 18 percent at $9.55 billion. In the same period, Foxconn’s revenue dropped 19 percent to about $27.03 billion, and its profit rose just 2.9 percent.
It’s not a surprise to see Foxconn’s earnings linked so closely to Apple’s. In the past, it was a beneficial thing, as Foxconn got to enjoy increased revenues when new products came out of Apple. In 2010, Foxconn had a 53 percent growth in revenue, which was likely thanks in large part to the launch of the iPad. But, that has slowed down, as the manufacturer only saw a revenue growth of 13 percent in 2012.
On top of the declining luck with Apple, Foxconn has been faced with rising wage costs and issues with employees — discontent, suicides, and accidents. In regard to all of these issues, the company has been looking at ways to keep things running smoothly.
Of course, hedging bets would be one smart move on the company’s part, and it has been suggested that the company is looking to add new clients and work on tasks aside from contract manufacturing for other brands. One executive from the company said, “We need to actively expand our client base to help increase our manufacturing volume.”
On the point of diversifying the type of work the company does, another executive familiar with the company’s strategy said that Terry Gou, the chairman of Foxconn, “has ordered all business units to produce peripheral accessories of electronics products as it is more profitable than assembly services. We also plan to license Apple’s technology to make some own-brand accessories that are compatible with iPhones and iPads.”
The company has been increasing its production capacity, but its clients haven’t been increasing their orders significantly. This has left the company with extra capacity that it may use to produce its own products. As suggested above, it could come out with Foxconn-brand accessories, like cables and keyboards.
It is already making some of its own devices, but they are being sold under different brands. Currently, the company manufactures TVs that are sold in the U.S. by RadioShack (NYSE:RSH) under that company’s brand. Foxconn is also working on deals with Huawei, Vizio, Hunan TV and LeTV.com.
In addition to manufacturing, the company could be looking into the service industry as well as online retailing. Foxconn may be considering opening showrooms that would let customers check out products before buying them at online Foxconn stores. Executives have said that the company is also investing in cloud computing technologies, mobile apps, and even apps for smartwatches. Some of the new endeavors may take the form of spinoffs from the company.
Apple could be affected by Foxconn’s decisions and may have to look for other manufacturers to work with on its products.
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