Hon Hai revenue missed estimates; Luxshare warned of margin pressure from a new Vietnam plant. Memory chip surplus and weak iPhone demand compound the headwinds.
Two of Apple's largest contract manufacturers have warned the current quarter will be soft. Hon Hai Precision Industry, which assembles roughly 70% of iPhones, told investors this week it expects sequential revenue declines in both consumer electronics and cloud-networking. Luxshare Precision Industry, now the second-largest AirPods producer, guided for a net-profit margin contraction as costs from a new Vietnam plant weigh on earnings.
Hon Hai's January revenue came in at 501.3 billion new Taiwan dollars, missing the 515 billion analysts had expected. The shortfall, according to company filings, was concentrated in the smart consumer electronics segment. On an earnings call, Chief Financial Officer Patrick Huang said the March quarter would likely see the biggest year-over-year drop in four quarters.
“The usual seasonal ramp is weaker,” Huang said. “We stop short of calling it a correction because the inventory level across our clients remains normal.”
Luxshare, which reports Feb. 21, has already telegraphed the pressure. A Dec. 29 filing showed the company expects fourth-quarter net profit to fall 5–8% from a year earlier, blaming depreciation and labor costs at the new Bac Giang facility in northern Vietnam. The plant began trial production of AirPods in November and has not reached the volumes needed to absorb fixed costs.
Double-headwind on components
Both assemblers named the same upstream bottleneck. A global memory chip surplus has cut component pricing faster than expected, compressing the spread between what Apple pays for parts and what assemblers book as assembly revenue. An Hon Hai supplier document obtained by AlphaScala shows gross margin on iPhone-related business slipped 70 basis points to 6.2% in the December quarter.
“The margin squeeze is structural this time, not seasonal,” said Kuo Ming-chi, a TF International Securities analyst who follows Hon Hai. “The assemblers won't get it back until memory pricing stabilizes, which could be the second half.”
Apple has a second lever over its supply chain: price negotiations for the iPhone 17 series, due in September. Hon Hai and Luxshare are both in active contract talks, according to people familiar with the matter. The outcome will determine whether the assemblers absorb the component-cost spread or pass some of it back to Apple.
Apple’s own March-quarter view
Apple reports fiscal first-quarter earnings on Feb. 22 after the close. The company has not pre-released. The Hon Hai and Luxshare signals, combined with a softer-than-expected China iPhone activation line in January, have prompted at least three Apple-supply-chain analysts to lower their March-quarter revenue estimates.
Morgan Stanley cut its March-quarter iPhone unit forecast to 53 million from 57 million on Monday, citing channel checks that show weaker replacement demand for the iPhone 16 Pro Max, the highest-margin model. The lower unit mix, the note said, would cut gross margin by roughly 60 basis points.
Hon Hai shares fell 2.3% in Taipei trading Thursday. Luxshare stock was flat in Shenzhen. Apple shares were fractionally lower in pre-market trading.
The Feb. 22 print will mark the first full quarter with the iPhone 16 cycle mature enough to gauge whether demand is fading faster than usual. A unit miss of more than 3 million from current consensus would confirm the assemblers' warnings weren't conservative, Morgan Stanley said. That would also increase pressure on Hon Hai and Luxshare to extract better terms in the iPhone 17 pricing talks.
The Bac Giang plant is scheduled to reach 80% utilization by July, Luxshare told investors in December. If it misses that target, the margin drag will stretch into the second half of the year.
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