TAIPEI -- Key iPhone assembler Foxconn on Thursday said it would ask affiliate Sharp to "adjust" its management team if the Japanese tech company failed to improve its operations after reporting a significant net loss and impairment.
Foxconn's net income in the first quarter fell 56% on the year, weighed down by headwinds at Sharp related to a sluggish display market.
"We own a 34% stake in Sharp and are the biggest single stakeholder. However, Sharp has its own board of directors and Foxconn does not have control over the company," Foxconn CFO David Huang told an investors conference on Thursday. "We have requested Sharp propose an improvement plan in the interests of its big stakeholder. If it still doesn't improve, we will ask them to adjust their management team to make operational improvements."
Foxconn, the world's largest contract electronics manufacturer, invested in Sharp in 2016, as Foxconn founder and former chairman Terry Gou saw displays as a strategic resource in the tech industry.
The 34% stake that Foxconn currently holds in the Japanese company is down from more than 45% in 2016. Foxconn subsidiary Foxconn Technology Co. and Gou's personal investment arm, SIO International Holdings, also own stakes in Sharp.
Huang's comments came as Foxconn reported net income of 12.82 billion New Taiwan dollars ($416 million) for the January-March quarter, plunging 56% on the year as Sharp logged a 219.7 billion yen impairment charge on display-related buildings and equipment, which Foxconn had to recognize as a roughly NT$17.3 billion loss based on its stake in the company.
Foxconn's net profit margin dropped to 0.88% from 2.09% the same time a year ago, while its gross margin stayed above 6%.
Foxconn Chairman Young Liu also addressed his company's recent disagreement with Lordstown Motors, an American electric light-duty truck startup and a client of Foxconn, over further investment. The disagreement, Liu said, will not impact Foxconn's plans and operations at the Ohio manufacturing base.
"Foxconn has been proactively seeking clients, and we will be prudent to optimize our capacity to serve clients" in Ohio, he said. The U.S. Inflation Reduction Act, which incentivizes domestic production, "has made our Ohio base attractive," he added.
Liu said Foxconn has engaged in talks with many makers of traditional cars to build EVs for them but said many of them were hesitant to outsource EV production.
The chairman said it was a similar case 20 or 30 years ago, when PC makers were reluctant to outsource manufacturing. "But Foxconn believes traditional carmakers will eventually allocate some EV manufacturing to players like us, given [that] the speed of getting products to market and costs are crucial in the era of EVs."
"We have several hundreds of car assembly talents in Ohio, and our production base in Ohio is particularly precious due to the IRA. We believe we will be a game changer to the industry."
Foxconn agreed in 2021 to buy Lordstown's Ohio plant and help produce the U.S. maker's pickup trucks, and to buy a stake in Lordstown, which was critical for the financially struggling startup.
However, Lordstown recently warned in a stock filing of the possibility of bankruptcy if it does not receive further investment from Foxconn.
EVs are a key growth strategy for Foxconn as the smartphone industry slows. Its auto-related business includes whole-car assembly, automotive software and components, and semiconductors -- supplies such as battery packs, microcontrollers and silicon carbide chips.
The dispute with Lordstown, however, is considered a setback to Foxconn's auto ambitions. So far, its EV clients are mostly startups like Fisker and Lordstown, as it usually takes many years for a tech company to become a verified supplier to a traditional automaker.
Still, building vehicles for Lordstown and Fisker is a crucial step for Foxconn to prove that the iPhone assembler is capable of making cars.
Looking forward, Foxconn said revenues for the April-June quarter are estimated to decline on both a quarterly and annual basis due to the continued headwinds in the global economy. It also revised down its outlook for the cloud-computing business from year-on-year growth to flattish this year, as the inventory level for some clients remains high.