New Foxconn Facility to Build More Amazon Echo Devices in China

Patently Apple is reporting that Foxconn will be building a new facility in China dedicated to producing more Amazon Echo devices to meet growing demand.

Foxconn will ramp up the capacity of its plant in Hengyang in 2017, including the adding of 30 new production lines for production of audio equipment and tablets, and another 15 lines for smartphones and tablet mainboards and other components…

The added production lines for audio products indicates that demand for Amazon Echo smart devices is likely to increase significantly in 2017, pushing Foxconn to ramp up its capacity, said the sources. Foxconn has been cooperating with Amazon since 2007 and is also the sole maker for the Amazon Echo.

Amazon Echo Sales Will Outpace Forecast

This production expansion almost certainly confirms that Amazon’s earlier estimates of 10 million Echo devices shipped in 2017 was too low. If it were correct, the company wouldn’t need supplementary production capacity just to support 2017 shipments. Then again, The Information reported that Amazon’s internal estimates originally forecast 3 million Echo device sales in 2016 and the company likely shipped twice that number and one estimate puts it even higher.

Consumer adoption has outpaced expectations in part because of the introduction of the Amazon Echo Dot at a sub $50 price point. Amazon even ran a special that lowered the price point below $40 during the fourth quarter of 2016. Yes, the laws of supply and demand impact unit sales. Bring a popular product to market at a lower price point and you are highly likely to sell more of them. When you expand a production facility in China to manufacture more units this year, it is also highly likely you are selling more devices than forecasted.

Does This Mean Strong Q1 2017 Sales for Echo?

This is also a good indication that unit sales in Q1 continued to be strong despite the new competition from Google Home. Evercore estimated that about 500,000 Google Home units were shipping in Q4 2016, somewhere between 15-20% of total Amazon Echo shipments during that period. It will be interesting to see if the expected introduction of Microsoft Cortana-enabled Invoke from Harman Kardon later this month or the expected Apple smart speaker announcement in June will slow Echo sales. Amazon’s big earnings announcement last week suggests they will have plenty of cash to compete as long as consumer interest in voice assistants persists.
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