Foxconn's profit disappoints, but the big manufacturer has set its sights on electric...


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Bottom line: The impact of the pandemic on Foxconn's business lasted into the fourth quarter of 2020, and an ongoing shortage of chips will reduce its outlook for the present year. However, the Taiwanese manufacturer giant expects its revenue to grow 10 percent for the year, and is optimistic about the supply chain's ability to recover in early 2022.

Foxconn's parent company, Hon Hai Precision Industry today reported disappointing results for the last quarter, which is partly explained by its accelerated effort to make electric cars. For the three months ending in December 2020, Foxconn's net income was $1.6 billion, which not only misses the average estimates of $1.76 billion projected by analysts, but also represents a 3.7 percent decline compared to the same quarter of 2019. On the other hand, it's a 15 percent increase over the first quarter of 2020, and close to the company's own forecast.

Foxconn chairman and CEO Young Liu said during an investor call the company's revenue for most of 2020 was driven in no small part by Apple's iPhone 12 lineup, as well as strong PC sales. But as the shortage of chips worsened towards the end of the year, the company started monitoring the supply chain more closely. Liu explained the impact should be limited to under 10 percent of client orders, and the company remains cautiously optimistic.

The global shortage of chips is likely to last well into 2022, possibly even longer, as the supply chain shows little sign of recovery after being strained by high demand at an unfortunate time when droughts, snowstorms, crypto miners, and surging appetite for cars have taken a toll on the biggest chip foundries' output.

As for Foxconn, the company started noticing changes in the materials supply earlier this month and expects the shortage of chips to extend until the second quarter of next year. Liu also detailed plans for expanding into electric vehicles, including a $1 billion investment to build a manufacturing plant in North America, with the most likely locations being Mexico and Wisconsin. When ready, the facility would be capable of producing 10,000 cars per month.

All of this is part of Foxconn's "3+3" plan to improve its gross margin -- which currently sits at 5.65 percent -- to at least 10 percent by 2025, through a combination of bets on electric vehicles, digital healthcare, and industrial robotics. It is, perhaps, no coincidence that just as Apple is rumored to prepare its electric car for a debut later this year, Foxconn is also talking up its plans to build the "Android system of the EV industry," along with a solid-state battery that's supposed to be ready by 2024.

Unlike most automakers which are using a closed system to develop their electric vehicles, Foxconn wants to build an open EV platform dubbed MIH that already has an ecosystem of 400 partners behind it such as MediaTek, Qualcomm, Texas Instruments, ST Micro, and Amazon Web Services. In doing that, Foxconn may become the go-to partner for most EV startups, especially those interested in building autonomous vehicles.

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