Apple supplier Foxconn puts iPhone base into quarantine

Hon Hai Precision - also known also as Foxconn - cut its 2020 revenue outlook after deciding to impose strict quarantines at its main iPhone-making base, a measure to guard against the coronavirus outbreak that may hurt Apple.

Apple supplier Foxconn puts iPhone base into quarantine

Hon Hai Precision - also known also as Foxconn - cut its 2020 revenue outlook after deciding to impose strict quarantines at its main iPhone-making base, a measure to guard against the coronavirus outbreak that may hurt Apple.

Hon Hai, which makes the vast majority of the world’s iPhones from the central Chinese city of Zhengzhou, officially resumes production on February 10 after an extended Lunar New Year break.

But the company said in a statement that workers returning from outside Henan province -- the site of its main factory -- will be sequestered for 14 days.

Any staff reporting to work who reside within the province itself will be isolated for seven days.

The lost production prompted Hon Hai to slash its forecast for revenue growth in 2020.

The company is now projecting a sales increase of 1% to 3% this year, chairman Young Liu said.

That’s down from a January forecast of 3% to 5%, before the epidemic spread around the globe, and lags the 5.4% average of analysts’ projections.

The contagion is expected to disrupt Apple’s carefully calibrated production chain centered on China while dampening consumer demand and overall economic growth.

As China’s largest private employer and a key partner to many of the world’s most recognisable consumer brands, Hon Hai has become a high-profile symbol of how the outbreak could disrupt the world’s supply of made-in-China electronics.

“Given current market conditions, we are lowering to 1%-3%,” Mr Liu replied when asked about whether Hon Hai will cut its original sales growth forecast for this year.

Hon Hai, which makes products for companies from HP to Sony Corp, said this week it still expects to be able to restart facilities throughout China on schedule.

Key suppliers with major Chinese operations such as Quanta Computer, Inventec and LG Display have also said they would go back to work next week.

But while Chinese officials and companies have targeted February 10 as the date to resume work across much of the country, doubts about the timing have grown in recent days as the virus death toll rises, workers find themselves stuck in municipal lockdowns and the transport of people and goods has been hampered.

Hon Hai’s lower 2020 sales growth outlook of 1% to 3% likely reflects the severity of disruption to its operations from the coronavirus outbreak.

Apple in January issued a wider-than-usual sales forecast to reflect what chief executive officer Tim Cook called “uncertainty” caused by a virus outbreak in one of its most important markets.

Smartphone sales -- particularly in China -- are expected to take a big hit from the coronavirus outbreak after government-imposed containment measures snarled logistics and emptied out stores.

Hon Hai’s Hong Kong-listed unit FIH Mobile makes phones for Xiaomi and Huawei Technologies.

Research firms vary in their estimates of how big the shipments drop-off will be, reflecting the still-developing nature of the virus outbreak -- but they agree it will hurt.

Strategy Analytics forecasts a 32% decline in Chinese shipments in the first quarter, to 60 million from roughly 89 million shipments a year earlier.

Canalys, starting from a similar estimate for 2019, scythes its expectations down to 42.5 million shipments.

Meanwhile, Nike, the sportswear giant, was among the first major consumer companies to cite a significant impact from the coronavirus outbreak on its business, followed by European rival Adidas and Michael Kors owner Capri Holdings.

As deaths from the coronavirus outbreak climbed worldwide, global corporations have instituted travel bans, closed thousands of stores in the country and are waiting to see when factories that have stayed idle.

Most companies have said it’s too soon to try to assess the financial cost of the rapidly spreading Sars-like virus that is threatening a key growth market and global manufacturing hub.

Nike has closed about half of its company-owned stores and is operating under reduced hours in locations that remain open.

The company said this week it expected a material impact on its operations in the country, without providing further details. China has long been considered Nike’s greatest growth area. The company generated $6.2bn (€) sales in the region last year, up from $2.6bn in 2014.

Capri, owner of Michael Kors, which also owns the Jimmy Choo brand, cut its forecast for the fiscal full year that ends in March by about $100m in revenue.

“This estimate could materially change if the severity of the situation in China worsens,” chief executive officer John Idol said.

Germany's Adidas said it has closed a significant number of stores in China and franchisees are doing likewise, without specifying the number. It’s too early to assess the negative impact on its operations there, a spokeswoman said.

- Debby Wu and Mark Gurman, Bloomberg

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