Foxconn to restart China production as virus hits phone industry

US-based chipmaker Qualcomm warned that the global phone industry will be affected by the virus outbreak in China.

    Foxconn, the world's largest contract electronics manufacturer, said it was following government holiday schedules in China and would continue to do so [File: Qilai Shen/Bloomberg]
    Foxconn, the world's largest contract electronics manufacturer, said it was following government holiday schedules in China and would continue to do so [File: Qilai Shen/Bloomberg]

    As businesses and factories remain closed in China to help curb the spread of a deadly coronavirus outbreak, the mobile phone industry is warning of its negative effects on output and profits.

    Taiwan's Foxconn aims to gradually restart operations at factories in China next week but it could take one to two weeks from then to resume full production due to the coronavirus outbreak, a person with direct knowledge of the matter told the Reuters news agency.

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    Foxconn, which makes smartphones for global vendors including Apple, has filed requests to reopen factories with Chinese authorities, the source said, adding that a full resumption was not possible until late February due to travel restrictions imposed to curb the virus.

    A delay in the resumption of operations could affect the global technology supply chain and shipments to Foxconn's customers, including Apple.

    "Roads are closed in some parts of the country. Nobody knows for sure if some workers could get back in time," said the source, who described a "chaotic" situation in the company's top management as it scrambles to meet different requirements for the resumption of operations set by various local governments across China.

    "A full resumption will take at least one to two weeks from February 10."

    In some cities, authorities are asking companies to put workers returning from other provinces under a three-day quarantine, which is a challenge for big companies like Foxconn, the source said.

    "How is it possible to quarantine tens of thousands of people in one neighbourhood for three days?" the person said.

    The factory halt is set to hit Foxconn's profit for 2020 but it was still evaluating the likely effects, the person said.

    "Profit is definitely going to be hit, but as to how big the impact will be, we're still calculating," the person said.

    Foxconn said it does not comment on specific production practices but the company has "measures in place to ensure that we can continue to meet all global manufacturing obligations."

    "Our facilities in China are following government holiday schedules and will continue to do so until all businesses have resumed standard operating hours," it said in a statement, adding that the company is able to address the needs of employees and customers, citing its experience in dealing with the Severe Acute Respiratory Syndrome outbreak in 2003.

    Foxconn, the world's largest contract electronics manufacturer, was making plans to ensure the health and safety of its hundreds of thousands of workers.

    The company will use local workers as much as possible while allowing time off for those who can not travel long distances to get back to work, according to an internal document reviewed by Reuters.

    Foxconn's factories are dependent to a great extent on migrant workers from poorer regions of China.

    "We will be very glad if the return rate could hit 30 percent (on February 10)," the source said.

    Shares of Foxconn, formally known as Hon Hai, have dropped more than 10 percent since the share market reopened last week following the Lunar New Year holiday.

    'Significant uncertainty'

    United States chipmaker Qualcomm Inc also warned about the potential threat posed by the coronavirus outbreak to the mobile phone industry, with possible effects to manufacturing and sales.

    The comments by Qualcomm, the world's biggest supplier of "modem" chips that connect mobile phones and other devices to wireless data networks, dragged down chip stock shares despite signs that an industry downturn was ending.

    Qualcomm's chief financial officer, Akash Palkhiwala, on a conference call with investors following the release of quarterly results, said the company expects "significant uncertainty around the impact from the coronavirus on handset demand and supply chain."

    Qualcomm shares fell as much as 3.75 percent in after-hours trade.

    Although the chip supplier forecast higher revenue for its second quarter in the range of $4.9bn and $5.7bn, which was above Wall Street estimates, the forecast was wider than usual because of the outbreak in China, which has killed hundreds so far.

    The company lowered the bottom end of its earnings-per-share guidance by five cents to account for possible disruptions, Palkhiwala said.

    On the conference call, Qualcomm officials tried to calm analysts' concerns over the virus, saying that the biggest markets for advanced 5G mobile phone networks this year are expected to be in the US, Korea and Japan and that the company could weather disruptions.

    "If we have an issue, a supply chain issue or demand issue in China, we tend to have the ability to have other regions to back it up," Chief Executive Steve Mollenkopf said. "So we tend to look at the business in terms of our planning. We want to make sure that we maintain that strength across different markets."

    SOURCE: Reuters news agency