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Foxconn parent Hon Hai (HNHAF.PK), which is believed to get 60%-70% of its revenue from Apple...

Foxconn parent Hon Hai (HNHAF.PK), which is believed to get 60%-70% of its revenue from Apple (AAPL +1.2%), reported a 19% Y/Y drop in calendar Q1 sales to $27B. KGI Securities: "A quarterly decline was expected, but not a yearly decline ... This shows that Hon Hai's revenue depends too much on Apple, and iPhone orders corrected more than expected." Nonetheless, Apple is following the tech sector higher, a possible sign a weak Q1 is priced in.
Comments (28)
  • u01bsb0
    , contributor
    Comments (616) | Send Message
     
    probably was Cook diversifying the supply chain and putting orders through other suppliers due to foxconn's under age labour in late 2012.
    10 Apr 2013, 11:19 AM Reply Like
  • imac007
    , contributor
    Comments (441) | Send Message
     
    One thing to consider is the challenges to Apple's supply chain. Cook said as much, saying "constraints" on the supply chain was resulting in more demand than supply. He spoke of partnering with the supply chain to increase their capacity.

     

    Imagine growing so fast you have to help your suppliers grow by investing in them.

     

    The last 4 quarterly reports contain an investment line for property, plant and equipment. That total is over $18B. As one of the key links in their supply chain Foxconn will be a major partner they need to invest in. They invested $8.3B in the July-Sept quarter alone. Of course, not all of it would be in supply chain. The timing suggests that a large part went to building out capacity for the fourth quarter.

     

    The question is whether Apple received any consideration, such a lower per unit assembly costs, as a result. This would reduce revenue but not necessarily reduce EPS. That is the real issue.

     

    In fact, Foxconn reported record earnings per share and both earnings and consolidated revenue surpassed analyst estimates.

     

    They have a complicated relationship. Foxconn has needed to increase worker pay and improve conditions. Apple needed to contribute to pay for those increases, which are significant. Margins went up from 8.89 percent to 9.58 percent year-over-year a 7.7% increase, while Apple's drop from 40-38% last quarter, about a 5% margin impact, makes sense. Apple has likely received consideration for its investment in building out capacity.

     

    The consideration for Apple investment, likely explains a large part of the revenue difference, but did not impact their profitability. Bloomberg attributes the record profit to greater production of iPads and iPhones.

     

    If you are looking for a red flag that foretells a negative impact to Apple's upcoming report, I think you need to polish up your crystal ball, and continue looking. This is not likely it.
    10 Apr 2013, 02:21 PM Reply Like
  • nguyenvanphuoc
    , contributor
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    If you remember, Tim Cook said that it was easy to determine what was going on at Apple by examining a single data point in the supply chain, the reason being that the chain is not very complex and they have a single source for everything.

     

    Oh wait, he said the exact opposite of that. Never mind.

     

    I guess it must be that Apple is Foxconn's only customer, so a drop in their revenue means a direct correlation to Apple's performance. That makes more sense.
    10 Apr 2013, 11:28 AM Reply Like
  • Z91
    , contributor
    Comments (10) | Send Message
     
    it could be because weakness in PC sales...they make PC's for HP right
    10 Apr 2013, 11:37 AM Reply Like
  • Doyle3000
    , contributor
    Comments (1255) | Send Message
     
    I believe that although Apple would never admit it, they feel their corporate secrets may not be as safe in Asia as they are here. I expect the supply chain to migrate back to North America over these next 5 years and Apple certainly can make that investment and make it pay off. The Samsung iPhone was a real wake up call to them. Plus how great would it be to have more technical jobs here?
    10 Apr 2013, 11:38 AM Reply Like
  • JUDOKA
    , contributor
    Comments (406) | Send Message
     
    Then why were 80% of the cell phone activations in the first quarter iPhones??Check my facts.You may find something that disputes this.
    10 Apr 2013, 11:41 AM Reply Like
  • bahram2
    , contributor
    Comments (52) | Send Message
     
    Do not forget that Apple has now production in Brazil too. Something that the stupid analysts do not know or keep forgetting.
    10 Apr 2013, 12:22 PM Reply Like
  • MJ Pragmatist
    , contributor
    Comments (103) | Send Message
     
    I thought Foxconn was making the Apple products in Brazil? Thus, this shouldn't impact Foxconn's revenue significantly.
    10 Apr 2013, 12:48 PM Reply Like
  • Humble Eagles
    , contributor
    Comments (1296) | Send Message
     
    MJ, I believe you are correct. The Brazilian operation is Foxconn, too, as I understand it.
    10 Apr 2013, 02:32 PM Reply Like
  • bahram2
    , contributor
    Comments (52) | Send Message
     
    Do not forget that Apple has now production in Brazil. That's something that stupid analysts don't know or forget.
    10 Apr 2013, 12:25 PM Reply Like
  • bgold1955
    , contributor
    Comments (1938) | Send Message
     
    Apple has sold more units in the last year than ever before. So not sure how this could be related to Apple.
    10 Apr 2013, 12:36 PM Reply Like
  • Humble Eagles
    , contributor
    Comments (1296) | Send Message
     
    Let us review. Remember, that Foxconn went public with wanting more money out of Apple last Fall when the iP5 was constrained. The next day, a story ran that Apple was going to diversify its supply chain. I suspect they made Cook really mad. Digitimes reported a couple of months ago that Pegatron was now producing all of the iP4s. Here is the quote from early Feb of '13:
    "The sources believe that the strong price/performance ratio of the iPhone 4S compared to the iPhone 5 allowed the previous-generation smartphone to continue seeing strong demand in the retail channel and the unexpected outcome has in turn benefited the upstream supply chain of the iPhone 4S.
    Currently, the iPhone 5 and the iPad 4 are both manufactured by Foxconn Electronics (Hon Hai Precision Industry), while the iPhone 4S and the iPad mini are handled by Pegatron Technology."
    I suspect the drop is a sign that the iP4s and mini are doing very well. And Pegatron, not Foxconn, is the producer.
    10 Apr 2013, 12:44 PM Reply Like
  • imac007
    , contributor
    Comments (441) | Send Message
     
    If you look closely at the Foxconn report it appears that less revenue did not impact their EPS. They actually produced more iPads and IPhones, so how could they have less revenue, better margins and increased EPS. Yet they exceeded analyst expectation on all three fronts.

     

    The clues are found with Tim Cook talking about partnering with the supply chain and constraints. Constraints means the supply chain was having trouble growing fast enough. In the last year Apple has invested over 18B in "property, plant and equipment". Some of that would have gone into this "partnering".

     

    If Foxconn charged back building out capacity to Apple, revenue for that would show up on the balance sheet.
    If Apple builds it out directly then it would not show up as revenue at Foxconn.
    That explains the seeming paradox.
    It also explains why Foxconn enjoyed 7.7% margin expansion while Apple only seemed to experience a 5% impact last quarter. Apple likely received consideration for having built out infrastructure. It fulfills some of Apple's commitment to improving working conditions/pay.
    It's just another example of Tim Cook being correct in saying you cannot judge Apple based on supply chain numbers.
    12 Apr 2013, 03:06 PM Reply Like
  • streetwatcher
    , contributor
    Comments (74) | Send Message
     
    1- Dress it up anyway you like. The Big Lot stores in Dallas are advertising 7 inch Android Tablets for $89.95. Will AAPL reduce prices? - Expect margins to be leaner than 2012 for AAPL.
    2- Remember the analysts (Brian White of Topeka Capital Markets and Gene Munster of Piper Jaffray), who predicted AAPL share price of $1,001 last year?
    Shares were at $370 ish at the time and had a good run. There was Not much serious competition for Smartphones and Tablets. Will AAPL share double again from here?
    10 Apr 2013, 01:00 PM Reply Like
  • tech01x
    , contributor
    Comments (623) | Send Message
     
    Let's see... 800x600 display, single core 1.2GHz processor, no Google Play store, 3 hour battery life. So it cannot run even the meager amount of tablet apps available on the Google Play store - they have to use the Amazon store only. The people buying this tablet was never in the market for an iPad anyways. It's cheap crap for people looking to buy cheap crap. It's a desk drawer filler for people that don't look closely at the money they spend.

     

    I think Apple will have to lower prices (as they usually do), but the D2 is not the reason.
    10 Apr 2013, 01:14 PM Reply Like
  • Bill too
    , contributor
    Comments (2) | Send Message
     
    An entry-level tablet just serves to whet the appetite for something better, like an iPad or mini.
    10 Apr 2013, 10:59 PM Reply Like
  • imac007
    , contributor
    Comments (441) | Send Message
     
    How many Apple analysts does it take to screw in a lightbulb?
    Just one, installation is easy, he just holds it in place and the whole Apple world revolves around him, for a day.
    12 Apr 2013, 03:30 PM Reply Like
  • Eric Dee
    , contributor
    Comments (807) | Send Message
     
    Thanks Humble Eagles, good catch, here is a related URL: http://engt.co/10Vqy5s
    10 Apr 2013, 01:41 PM Reply Like
  • pagreen1966
    , contributor
    Comments (571) | Send Message
     
    All will be revealed in 2 weeks!
    10 Apr 2013, 01:49 PM Reply Like
  • Bigeye13
    , contributor
    Comments (10) | Send Message
     
    The article's conclusion is obviusly flawed by the existence of other reasons for the Hon Hai revenue fall, but it isn't good news for Apple. I am holding at least through April.
    10 Apr 2013, 01:50 PM Reply Like
  • Humble Eagles
    , contributor
    Comments (1296) | Send Message
     
    Bigeye, I think it is definitely a warning sign, too. Apple could miss this qtr, but I doubt they will. However, my greater concern is guidance. It sounds like new products aren't coming soon, so we could get a low guide and another implosion on the stock.
    10 Apr 2013, 02:35 PM Reply Like
  • RaulReina
    , contributor
    Comments (35) | Send Message
     
    Please be aware that if Apple was about to miss it own guidance that is very close to consensus, is obliged legally to issue a warning. The time for that already passed. So, under the new guideline rules defined by Apple, results should be at least within the range of 41-43B$ and that means something close/higher 37M iPhones
    10 Apr 2013, 03:39 PM Reply Like
  • Bifement
    , contributor
    Comments (29) | Send Message
     
    Apple stock price on a technical and fundamental basis is cheap today . Get it while you can!
    10 Apr 2013, 01:52 PM Reply Like
  • RaulReina
    , contributor
    Comments (35) | Send Message
     
    For your information, If Apple were about to miss its own guidance for March quarter, which is very close to consensus, it is legally obliged to issue a warning. The time for this, passed already. So, Apple is likely to report its results within guidance which is 41-43B$ in revenues which means some 37+ million iPhones.
    This Foxcomm result must be impacted by other non-Apple factors as they produce also for HP, DELL and Nokia
    Also, Foxcomm is not the only Apple supplier. Pegatron produces Iphone 4S and Ipad Mini.
    Reporters making easy wrong conclusions as usual
    10 Apr 2013, 04:50 PM Reply Like
  • John1138
    , contributor
    Comments (161) | Send Message
     
    The Surface tanked. Who was supposed to make that?
    10 Apr 2013, 05:11 PM Reply Like
  • Ian456
    , contributor
    Comments (4) | Send Message
     
    I guess reuters was the source? If it was I am suprised that they would publish such misleading facts and analysis. Has the bar dropped for them?
    10 Apr 2013, 08:57 PM Reply Like
  • what do I know
    , contributor
    Comments (1049) | Send Message
     
    So, the question that comes to my mind is that how many Analysts is it necessary to make the make up the market for Apple? Mr. Cook told people not to make up any Hay out of one message and people are still doing that, they are trying to make something out of one supplier, even though people know that Apple has multiple suppliers. Previously, the existence of market maker used to pose some kind of hurdle so stock did not give away to this kind of "nonsense" noise but stock are subject to any kind of "chatter". So, Apple is in the mud so any Tom, Dick and Harry can kick it. I wish the April 23 was tomorrow to end all this kind of rubbish.
    11 Apr 2013, 02:06 PM Reply Like
  • Eric Dee
    , contributor
    Comments (807) | Send Message
     
    Our rubbish collector came today, you need to ignore the "chatter" and trust in AAPL. After all you own it right?
    11 Apr 2013, 04:43 PM Reply Like
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