• 1Q 2023 profit margins up on gross and operating basis
• First quarter revenue at record high for period; EPS NT$0.93, down on-year
• Current quarter performance expected to decline on-quarter and on-year
• Low visibility to keep full year outlook conservative

11 May 2023, Taipei, Taiwan – Hon Hai Technology Group (“Foxconn”) (TWSE:2317) today announced its first quarter 2023 financial results.

In the January-March quarter, revenue reached a new record for the period, while profit margins on a gross and operating basis both rose. However, EPS in the first quarter was NT$0.93, down from a year earlier due to asset impairment recorded by an investment company. Looking ahead to the second quarter, with pandemic-driven demand ending to give way to a period of inventory adjustment in the industry, on top of off-peak seasonality, performance in the current quarter will decline on a sequential and annual basis. The outlook for the full year remains flat.

In the first quarter of 2023, revenue totaled NT$1.4624 trillion, up 4% on year; gross profit at NT$88.3 billion rose 4% at the same time; and operating net profit was NT$40.5 billion, rising 11%. Gross profit margin, operating profit margin and net profit margin were 6.04%, 2.77%, and 0.88%, respectively, with the first two growing significantly compared with 6.02% and 2.61% in the same period last year, while the latter was down from 2.09% a year ago. EPS was NT$0.93, down by NT$1.19 compared with a year earlier.

With inventory adjustments following the growth bump from pandemic-driven demand for ICT goods and amid a traditionally off-peak season, the current quarter is expected to see declines both on an on-quarter and on-year basis, said Hon Hai Chairman and CEO Young Liu. Among the Group’s primary product segments – apart from the sequential quarterly decline expected for smart consumer electronics – cloud and networking products and computing products are likely to be flat quarter-on-quarter, while components and other products are likely to show quarterly growth.

Chairman Liu said the outlook for full year 2023 overall remains flattish, with low visibility, particularly as monetary tightening around the world, coupled with geopolitical tensions, inflation and other uncertain factors impact the economic outlook. The outlook remains conservative.

In response to hot demand for AI servers in the near term, Chairman Liu was optimistic about the growth of CSP or AI servers, pointing out that Hon Hai’s server revenue reached NT$1.1 trillion last year alone. As a leader in server manufacturing, the Group will benefit from the demand for related infrastructure.

Regarding the progress of the Group's new business, in Ohio, production has begun smoothly for the first Monarch tractors, an autonomous agricultural electric tractor. According to current delivery schedules, the capacity utilization rate at Ohio facilities is on the rise, and preparations are underway to ready for production of other models next year. At present, the Ohio facilities continue to promote production of other vehicle models, without impacting current production schedules.

In terms of partnering with traditional auto OEMs, Chairman Liu said auto brand manufacturers must face the challenges of time-to-market and time-to-cost. This means a large part of the EV industry will actively move towards professional OEMs in the future, driving opportunities for Hon Hai. The auto manufacturing facilities in Ohio, acquired last year, is not just about production capacity, but more importantly, the human talent that comes with it; the Ohio facilities has hundreds of manufacturing colleagues with an abundance of experience from working at traditional carmakers. This is a very important asset, Chairman Liu said.

As for business opportunities brought about by the Inflation Reduction Act, major car manufacturers are also actively looking for production capacity, and Hon Hai's EV production capacity in the United States has become extremely precious, he said. While Hon Hai continues to proactively seek customers, now the interest is two-way – traditional automakers are also actively contacting Hon Hai.

Hon Hai is a game changer and, presently, the Group is prudently evaluating how to optimize capacity with the best customers. The goal is to find the next potential leading automaker, use more innovative and efficient processes to build vehicles, and provide customers with the most competitive production model to accelerate the trend toward electromobility.

In discussing smart city planning, Chairman Liu pointed out that Kaohsiung is suitable for the development of software, so a comprehensive smart city solution in cooperation with Kaohsiung will focus on platform and software development, and use EVs as vehicles for the mobile Internet of Things. A solid foundation can be set to build urban digital and intelligent services with software and hardware integration.

At the same time, Hon Hai will also build an e-bus factory and a battery factory in the Qiaotou Science Park; the Hofa Industrial Park will focus on the development of LFP batteries, and a battery cell factory is also under construction.

The EV platform MODEL C will enter into mass production and be gradually delivered to customers in the fourth quarter of this year. In addition, more reference prototypes will be launched this year to meet customer needs.

In the area of automotive software and semiconductors, Hon Hai’s proprietary "HHEV.OS" automotive software system will be applied to actual projects this year. Meanwhile, EEA and software platform-related projects have begun to generate revenue since last year. More than a handful of customers have begun test production of silicon carbide (SiC); the self-developed 1200V/750A SiC power module has been developed and negotiations are taking place with auto manufacturers on the design introduction of vehicle electric drive inverters.

Hon Hai also recently signed a strategic cooperation MOU with Infineon, a global leader in automotive semiconductors, to jointly establish a system application center to develop the required automotive subsystems for Hon Hai's EV platform and EEA architecture. Initially, it will start with the models that Hon Hai has launched. At the same time, the two parties will also further cooperate in product design/process development/capacity supply of SiC and related automotive semiconductors.

In the field of low Earth orbit (LEO) satellites and the metaverse, Hon Hai’s first LEO communication experimental satellite is about to complete final testing and is expected to be launched in the second half of the year. The Group is also gradually completing the layout in the metaverse, and has introduced metaverse and AR technology in its factories. In the follow-up development of smart cities, the Group will continue to explore the application of AR glasses in the tourism industry.

In regards to China, Hon Hai established a new business R&D and NPI center in Zhengzhou at the end of April. With its similar counterpart in Shenzhen, the two will form an ICT and 3+3 dual center in the future. The Group will also integrate its existing operational advantages, talent pool, and preferential policies to grasp opportunities for the development of the two major industries, ICT and EV.