Apple supplier Foxconn flags slight growth in core business as third quarter profit beats forecasts

TAIPEI (Reuters) - Taiwan's Foxconn 2317.TW, a key supplier to Apple Inc AAPL.O, posted a better-than-expected 23% rise in quarterly profit on Wednesday and forecast slight growth in its core business next year.

The latest solid showing from the world’s largest contract electronics manufacturer should ease investor concerns over weak global demand, as it comes on the heels of Apple’s positive earnings forecast for the year-end holiday quarter.

But the protracted Sino-U.S. trade war has kept global tech firms on their toes, prompting some to warn of lower sales and cut production.

Foxconn Chairman Liu Young-way told an investor conference after the quarterly results that he expects slight yearly growth in 2020 in its consumer electronics and smart devices business, which includes smartphones and TVs, thanks to “a stabilizing global economic situation.” He did not elaborate.

Liu also said Foxconn hopes to boost its gross profit to more than 10% in 3-5 years from 6-7% now, citing a “transformation” plan which includes investment in areas including making parts for electronic vehicles and digital health.

Foxconn, Taiwan’s tech bellwether and second-biggest company by market value, reported a net profit of T$30.7 billion ($1.0 billion) for the July-September quarter, versus an average forecast of T$27.75 billion by 12 analysts compiled by Refinitiv.

The company attributed the profit rise from T$24.88 billion a year earlier to improving margins from subsidiaries including handset maker FIH Mobile Ltd 2038.HK, which returned to profit in the third quarter.

“We predict an improving outlook for Hon Hai in 2020 thanks to better iPhone shipments,” KGI Securities said in a report ahead of the results, referring to Foxconn’s official name Hon Hai Precision Industry Co.

KGI expects iPhone shipments to grow up to 10% in 2020 and said higher demand for new technologies such as fifth-generation (5G) mobile technology could also help Foxconn boost sales and margins.

Foxconn manufactures the bulk of Apple’s iPhones in China, and analysts estimate nearly half of its revenue comes from the U.S. firm.

More U.S. tariffs against China are set to take effect on Dec. 15, although officials from both sides said they have agreed to roll back tariffs on each others’ goods if a “phase one” trade deal can be negotiated.

Liu did not elaborate on the trade war’s impact on Foxconn, but said it has to be “very flexible” in making adjustments in its global operations, noting it has factories in Vietnam and India.

Liu also said Foxconn would continue to invest in Wisconsin, dismissing speculation it may be considering scaling back such plans. He said in addition to flat screen panels, the company plans to invest in areas including high performance computing and data centres in the state.

Prior to the earnings announcement, shares in Foxconn, which has market capitalisation of around $41 billion, closed down 1.4% on Wednesday, lagging the broader market .TWII.

Despite trade war concerns and generally sluggish global demand for electronics, the stock has gained nearly 27% so far this year.

Reporting By Yimou Lee; Editing by Miyoung Kim and Kim Coghill