A lack of new “disruptive” innovation in smartphones continues to hit demand for new products leaving manufacturers to suffer the consequences. The latest evidence of the slowing growth comes from FIH Mobile, a subsidiary of Foxconn Technology, who just announced new guidance for 2016 net income which is now expected to be down 52% YoY. The company’s largest clients include Chinese smartphone OEMs like Huawei Technologies and Xiaomi as well as US OEM Motorola. The subsidiary has also historically benefited from spill-over Apple volume from it’s parent company, Hon Hai. Per the Company’s press release, consolidated earnings are expected to collapse to below $110mm in 2016 from over $228mm in 2015.
As at the date of this announcement, the Board expects the Group’s consolidated net profit for the year ending 31 December 2016 to be less than US$110,000,000 (i.e. a decrease of at least 52% when compared with the Group’s consolidated net profit of US$228,664,000 for the year ended 31 December 2015).
The substantial earnings decline was attributed to a 24% decline in YoY revenue and lower other income including service fees and molding sales.
The Board understands that the overall expected substantial decrease in the Group’s expected consolidated net profit for the year ending 31 December 2016 is primarily attributable, amongst other factors, to (1) lower demand from some of the Group’s major customers as a result of customer transition thus resulting in lower sales of the Group’s products (which, to the best of the Company’s estimate as at the date of this announcement, are expected to be less than US$5,700,000,000 when compared with the sales of the Group’s products of US$7,450,992,000 for the year ended 31 December 2015), and the decline in the Group’s gross profit as a result of the decrease in sales; and (2) lower other income like service fees and molding sales from these customers.
In taking a look back at the company’s 1H 2016 filings, we think we may have found a clue as to the source of the revenue “issue” with sales to American customers down 85% YoY.
And, of course, shareholders have had a bit of bumpy ride as profits continue to tumble.
And Apple shareholders are getting nervous…
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