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Foxconn's third quarter profit tumbles after iPhone X production hurdles

The logo of Foxconn, the trading name of Hon Hai Precision Industry, is seen on top of the company's headquarters in New Taipei City, Taiwan June 12, 2017. REUTERS/Eason Lam

By Jess Macy Yu

TAIPEI (Reuters) - Taiwan's Foxconn (Taiwan:2317.TW - News) reported a 39 percent slide in quarterly profit, far worse than expected, as the assembler of Apple Inc (NasdaqGS:AAPL - News) products saw margins squeezed by production bottlenecks for the iPhone X.

While the 10th anniversary version of iPhone has seen parts suppliers struggle with specifications for new features such as facial recognition and edge-to-edge display, red-hot demand for the product, which went on sale this month, is expected to lead to a relatively rapid recovery for Foxconn.

Apple has predicted strong holiday sales and said it is happy with how manufacturing of the iPhone X is progressing, although most analysts think it will likely take until next year or early spring for the tech giant to meet demand.

The world's largest contract electronics manufacturer, known formally as Hon Hai Precision Industry Co, said third-quarter net profit tumbled to T$21 billion ($700 million), some 42 percent below an average estimate from analysts.

It was Foxconn's first quarterly decline in a year and marked its biggest profit drop for a quarter since at least 2009. Revenue was flat.

"I think in the fourth quarter we expect to see a recovery because utilization will get better given the iPhone ramp-up," said Daiwa analyst Kylie Huang.

"So November/December should be better but still will be impacted overall in the fourth quarter."

Some analysts also attributed the profit slide to an appreciation in the value of the yuan as well as to labor idled due to a later-than-usual launch for Apple's new smartphone.

Although the iPhone 8 kicked off sales in September in line with its previous new phone launches, demand was lackluster as consumers waited for the iPhone X.

Foxconn is widely believed to be the sole manufacturer for the iPhone X. It manufactures the bulk of iPhones at massive facilities in China, and Nomura Securities estimates it produces around 67 percent of all iPhones Apple sells, with the rest made by the likes of Taiwan's Pegatron Corp (Taiwan:4938.TW - News) and Wistron Corp (Taiwan:3231.TW - News).

Shares in Foxconn fell as much as 2.8 percent in Wednesday trade to their lowest level since late September, underperforming the broader Taiwan market which was down 0.5 percent.

The stock, worth around $61 billion, has declined 10 percent over the past three months, partly pressured by weak sales for the iPhone 8 and concerns over the iPhone X.

Apple said it sold 46.7 million iPhones in the quarter ended Sept. 30, above analysts' estimates of 46.4 million, according to financial data and analytics firm FactSet.

(Reporting by Jess Macy Yu; Additional reporting by Miyoung Kim and Anne Marie Roantree; Editing by Edwina Gibbs)