Foxconn Struggling

From the Taipei Times:

Foxconn International Holdings Ltd (富士康控股), the world’s largest contract maker of mobile phones, said it expects profitability to come under pressure this year because of rising competition and increased development costs.

“It’s a tough operating environment,” Foxconn chairman Samuel Chin (陳偉良) said after a shareholders’ meeting in Hong Kong yesterday. “We’re not immune — it definitely impacts us.”

Foxconn, the worst-performing stock in Hong Kong’s benchmark Hang Seng Index this year, is seeking more business from customers including Nokia Oyj and Samsung Electronics Co, the world’s two biggest handset companies, to compensate for lower sales to Motorola Inc.

Yeah, many Motorola suppliers are suffering. I know Wintek is still reeling from the loss of orders with a significant decline in their stock price. The impact of low-performing brands on suppliers can be significant. So, what should companies do when demand from their main customers decline? Diversify!

Wintek diversified their client base and their product portfolio. Spreading the risk is sensible and it seems the only thing a company can do. Many smaller companies build capacity in anticipation of the projected sales forecasts from their main customers. When these orders do not materialize the company naturally suffers from having excess capacity and reduced revenues.

According to the Taipei Times:

Motorola, Foxconn’s biggest customer (Motorola) in 2006, is still “having difficulties” and will “continue to impact” the Hong Kong-listed company, Chin said.

Foxconn got higher orders from “all other customers” to help offset lower sales to the US company last year, Chin said.

Well Foxconn, who are not a small company, have increased sales to their other clients. For a huge company like Foconn to find new customers is very difficult. They already are the dominant company in the industry and they probably (at a speculative guess) do a lot of work for most mobile phone brands.

Article: Foxconn expects further difficulties