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(Bloomberg) — Foxconn Technology Group’s public arm Hon Hai Precision Industry Co. will headline an earnings week that should offer insights into the outlook for China’s tech sector, where the slowing economy has dented consumer sentiment.
Apple Inc.’s iPhone sales in China fell 24% over the first six weeks of the year, according to Counterpoint Research. That confirmed management’s view that the current quarter’s total sales and iPhone revenue would be similar to a year earlier, posing a challenge to Hon Hai, which gets about half its revenue from Apple.
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The risk of growing restrictions on China’s access to chip technology has also led Foxconn to shift some of the iPhone assembly to India, as Apple diversifies its supply chain. “The global tech supply chain faces a geographical reshuffle in the next decade due to geopolitical tensions and the need for resilience,” Bloomberg Intelligence said.
Hon Hai’s unit Foxconn Industrial Internet Co. probably experienced “substantial growth” in artificial intelligence server sales, BI said, though lackluster general server demand and graphics processing unit supply may have been a drag.
The electric vehicle market in China remained resilient, probably benefiting battery maker Contemporary Amperex Technology Co. Ltd. While it faces risks from a slowing market for EVs globally, the Tesla Inc. supplier maintained a market-leading position through the final quarter of 2023.
Things look brighter in the aviation sector, with Cathay Pacific Airways Ltd. expected to gain from post-pandemic travel demand. Air traffic during China’s Lunar New Year exceeded 2019 levels by about 20%, according to JPMorgan.
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Highlights to look out for:
Wednesday: Foxconn Industrial’s (601138 CH) full-year earnings probably increased 16%, estimates show. Smartphone component sales may improve thanks to channel inventory normalization and handset demand reaching a bottom, which could be offset by weak corporate spending and networking equipment sales, BI said. High-end AI servers’ increasing share of the product mix may lift the profitability of server assembly. Watch for any announcement on the replacement for Chief Financial Officer Guo Junhong after the company announced he was dismissed March 5.
- Cathay Pacific’s (293 HK) may extend growth in annual profit as they continue to recover from the pandemic. Pent-up demand meant passenger traffic rose steadily throughout the year after China’s borders fully reopened in early 2023. It’s also expected to resume dividends in 2024, so cash flows will be closely watched.
- Samsonite (1910 HK) full-year earnings were also driven by the resurgence in travel demand, with revenue jumping 29%, estimates show. That may be overshadowed by news that Samsonite is considering a potential exit from the Hong Kong bourse, joining other companies in potentially seeking higher valuations in other markets. Carlyle Group and KKR have shown preliminary interest in a potential takeover of Samsonite, according to a Bloomberg report.
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Thursday: Hon Hai (2317 TT) probably managed to boost fourth-quarter earnings despite a drop in revenue, consensus shows. A product mix improvement and Covid-related cost savings may have helped it improve its gross margin from a year earlier, BI said. The focus will be on the outlook after the firm reported an 18% slide in sales over the first two months of the year.
- Weibo (WB US) earnings should be broadly in line or short of estimates for the quarter given the uncertain economic outlook, BI said. Its high dependence on advertising big-ticket items means it will remain under pressure in 2024, BI added.
Friday: Contemporary Amperex Technology (300750 CH) said in a preliminary release that 2023 profit rose between 38% and 48% as its new energy business continued to grow. BI analyst Joanna Chen said the battery maker should be able to brave price competition thanks to its scale and cost advantages, and capture the growth in electric vehicle sales in China.
—With assistance from Rachel Yeo and Cindy Wang.
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