The chairman of Foxconn, the main manufacturer of Apple’s iPhone, made a plea to his staff at this week’s annual lunar new year celebration: “Have confidence”.
Terry Gou, 68, made the rallying call as he tries to steer Foxconn’s 1m workers through challenges that are battering not only his company, but the entire electronics industry supply chain.
In mobile phones, suppliers are facing a slowdown in iPhone sales, which dipped 5 per cent in the three months to December, and a potential backlash against Huawei, which was indicted in the US for spying and the theft of corporate secrets.
Elsewhere, the slowing global economy, the US-China trade war and the bursting of a bubble in cryptocurrencies has hit consumer electronics companies and chipmakers.
One Asia-based analyst said the maelstrom was so severe that the only question for investors was: “What can I short?”
“There are so many factors pushing downward on the electronics sector,” said Trinh Nguyen, Natixis senior economist for Asia emerging markets. “If you dig deeper into the China trade data, it is quite ugly.”
The problems are hitting both big and small suppliers. “Price pressure is being felt across the entire supply chain,” said Boyce Fan, an analyst at TrendForce, a technology research house in Taipei.
That includes the likes of Hong Kong-listed Sunny Optical. A leading supplier of cameras to smartphone makers, it was once popular with investors, who drove its share price up to HK$173 in mid-June. Last year, growth fell short of guidance, and its shares closed on Tuesday at HK$78.
At the other end of the scale, Taiwan Semiconductor Manufacturing, the world’s largest contract chipmaker, has forecast a 22 per cent decline in first-quarter sales this year.
“The slowdown in China has already been reflected in our customers’ businesses — and it has been reflected in our business,” Elizabeth Sun, a TSMC spokesperson, said.
Concerns that smartphone sales would start slowing began sending waves through the supply chain three years ago. Optimistic suppliers and analysts played down the impact, pointing to the growing demand for sensors and cameras in cars as the motor industry began its drive towards autonomous vehicles.
But carmakers have been slower to take up the slack and smartphone sales fell more quickly than expected.
Companies are weighing up their options: diversify geographically to chase markets such as India and escape profit-eroding tariffs arising from the trade dispute between the US and China, or look at entering new industries.
Foxconn and Pegatron, the two largest manufacturers of Apple’s iPhone, are expanding production capacity outside China. Foxconn, which also trades as Hon Hai, said last week that it had invested up to $213.5m in a subsidiary in India since September and acquired land use rights in Vietnam.
Pegatron, which accounts for about 30 per cent of Apple’s assembly orders, plans to build production capacity in Indonesia, Vietnam and India. Its expansion outside of China, said SJ Liao, the company’s president, might depend on further developments in the US-China trade dispute.
While smaller companies have moved some of their low-end production to south-east Asia, many are wary of more wholesale moves.
One Hong Kong-based analyst noted that when AAC, another Hong Kong-listed company that has been hit by the slowdown, first set up a plant in Vietnam to be closer to Samsung, it found a far less experienced workforce than in China.
Productivity at the Vietnam operations of the maker of acoustics, lenses and haptics — the motor that makes your phone vibrate — was lower and there was more waste.
“Whether it’s a US or local company, market share has shifted to the Asian supply chain,” she said. “A lot of them are based close to each other to shorten production lead times — the whole clan have to move somewhere together, just like [with] Samsung in Vietnam.”
