Evercore: Foxconn flags supply and demand issues

“Inflation has already begun to impact lower end smartphones, but they have not yet seen a major impact to the premium market.” — Analyst Amit Daryanani

From a note to clients that landed on my desktop Thursday:

ALL YOU NEED TO KNOW: Foxconn called a few different issues that it thinks will impact consumer electronics growth in the second quarter and for the full year. Supply remains an issue, but Foxconn also sounded relatively cautious on its demand outlook due to China lockdowns and inflation.

The chip shortage remains the main supply issue as the China shutdowns have only had a limited impact with Foxconn able to continue running its factories in a “closed loop” system.

The lockdown in China is hurting demand for electronics though and Foxconn called out inflation as the other major factor to watch for potential demand impacts. Inflation has already begun to impact lower end smartphones, but they have not yet seen a major impact to the premium market. Foxconn is expecting a slight y/y revenue decline in the June-qtr, which we think is consistent with Apple messaging. Apple did not provide formal revenue guidance, but we think their commentary implies revenue will be down low single digits – worth noting Foxconn commentary is related to hardware (iPhones notably), services growth could be a partial offset here.

Net/net: Foxconn commentary is consistent with what Apple said two weeks ago. Inflation remains the key risk to watch, but does not seem to be impacting high-end demand yet.

Maintains Outperform rating and $210 target.

My take: Sticking with an Apple target that’s more than $67 (47%) above today’s closing price.

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