Foxconn Reportedly Shifts Away from Phone Manufacturing

For most of the last decade, Foxconn was making money as fast as it could manufacturing smartphones, but times have changed. As the phone market levels off, Foxconn has reported started shifting its resources elsewhere. In fact, sources tell Nikkei that only one of Foxconn’s Android phone manufacturing contracts is turning a profit for the company.

Foxconn is based in Taiwan, but its main manufacturing arm, FIH Mobile, is in China where labor is vastly less expensive. It’s one of the world’s largest contract manufacturers with $14.9 billion in revenues last year. Producing Android phones for companies like Google, HMD, Xiaomi, and Lenovo account for more than 90 percent of its income.

Nikkei says Foxconn has decided to transfer hundreds of engineers away from smartphone projects and put them on its automotive electronics project. While most of FIH Mobile’s income is from mobile devices, it’s not making as much in profit per unit. In 2018, FIH Mobile reported an $857 million net loss, which is the largest since it went public on the Hong Kong stock exchange in 2005.

FIH has reportedly seen smartphone orders fall dramatically in the last few years. Even highly successful brands like Xiaomi don’t need as many units as smartphone reach saturation. Whereas FIG previously had huge engineering teams to service three or four Android clients, it’s now using three or four teams for a single client. Sources tell Nikkei that Google’s contract to manufacture Pixel phones with FIH is the only profitable contract right now.

The top five phone makers in the world have increased their share of the total market over the last few years, reaching 67 percent in 2018. Most of those firms like Samsung and Huawei have other manufacturing arrangements. FIH hasn’t confirmed any staffing changes, but sources tell Nikkei that about half of its phone project engineers are not on the automotive teams. The same sources say that FIH’s client list has declined in a similar fashion from around 20 in 2015 to less than 10 right now.

No one suggests that Foxconn is getting out of smartphone manufacturing. People still need phones, and they won’t all be Samsung devices. However, Foxconn is planning for a day when smartphone manufacturing isn’t enough to sustain its business.

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