Donald Trump is a formidable communicator. But his message has not been heeded fully in the UK, which he is visiting. The UK authorities remain ambivalent towards Huawei, the Chinese telecoms group the US president regards as a security threat to the west. He can take comfort in the greater impact his hostility is having on Taiwan’s Hon Hai, better known as Foxconn.
The iPhone supplier has reportedly halted several production lines. The purported reason for this is falling orders for Huawei smartphones. Hon Hai already has enough on its plate. Analysts estimate that half of its revenues come from Apple. Global iPhone sales declined in the first quarter this year, as did Hon Hai’s operating margins.
To hedge against Apple’s problems, Hon Hai diversified its customer base to include Huawei. Huawei is the world’s second-largest smartphone business. Its shipments jumped 50 per cent year on year in the first quarter. Those of market leader Samsung and third-ranked Apple both fell, the latter by nearly a third. Even so, the hedge did not help.
Hon Hai shares have fallen a third over the past year. At 9 times forward earnings its valuation has dropped to three-year lows. Prices for Huawei devices have taken a steeper dive. Hurt by the concern that Google will no longer update Android on Huawei phones, Lex has noted that second-hand market values have fallen up to 90 per cent on online sites.
Founder and chairman Terry Gou’s planned tilt at the Taiwan presidency has also worried the market. Bearish analysts forecast a revenue decline of at least a fifth in the second half of this year. Mr Trump’s message to stay away from Huawei has been heeded by Hon Hai investors, even if Brits remain selectively deaf.