iPhone X Production Woes Hit Foxconn Profit

iPhone X production problems took their toll on Apple manufacturing partner Foxconn Technology Group, which reported its largest quarterly earnings decline in a decade.

The Taiwanese company, formally known as Hon Hai Precision Industry Co., is assembling the iPhone X and Apple accounts for more than 50% of its revenue. In the third quarter, its net profit fell 39.2% to 21 billion New Taiwan dollars ($700 million), which was well below analysts’ estimates of T$35.6 billion.

Operating profit of T$18.71 billion ($620 million) was down 55.5% year-over-year, while revenue rose 0.33% to NT$1.07 trillion in the three-month period ended September.

“Foxconn had to recognize some initial [iPhone X] production costs in the third quarter and labor costs are higher this year partly due to a shortage of labor,” Vincent Chen, an analyst at Taipei-based Yuanta Investment Consulting, told Nikkei Asian Review.

“As peak season has been pushed back, Foxconn’s revenue was not quite enough to cover the rising costs in the past quarter,” he added.

Foxconn’s third-quarter earnings relied heavily on iPhone X output as it shared production of the iPhone 8 with other assemblers like Pegatron. The production issues reportedly involved the iPhone X’s forward-facing TrueDepth camera, which powers the Face ID biometric authentication system that is replacing Touch ID.

The iPhone X officially launched on Nov. 3 and new orders are scheduled to ship in three to four weeks, reflecting demand that continues to exceed supply.

“Given that iPhone X orders have been shipping sooner than advertised, there are some suggestions that Apple has addressed many of the manufacturing issues it faces, and those improvements at the supply chain level could be reflected in Foxconn’s December quarter,” AppleInsider said.

Chen forecast that Foxconn’s revenue will grow from NT$1.4 trillion to NT$1.47 trillion in the current quarter, and rise 33% year-on-year to NT$1.3 trillion in the January-March period. Meanwhile, Apple is forecasting a record holiday quarter on healthy demand for the iPhone X.