iPhone maker Hon Hai 2nd-Quarter Earnings Growth Slows

Aug 30, 2015

Hon Hai Precision Industry Co., the world’s biggest contract electronics maker, reported slower earnings growth in the second quarter as customers held off smartphone purchases in anticipation of a new Apple iPhone in the fall.

 The Taiwan-based iPhone assembler said net profit for the three months ended June 30 was up 27% from a year earlier, compared with growth of 56% in the first quarter and 33% in the fourth quarter of 2014.

The slowdown reflects the challenge of depending on Apple Inc. for more than 50% of revenue. Hon Hai, also known by the trade name Foxconn Technology Group,has built and run large-scale manufacturing facilities for Apple’s products in China, where the company has struggled with rising wages and labor unrest. The latest incident to draw scrutiny was the death last week of two workers at its production base in Zhengzhou, central China.

Hon Hai is also under increasing pressure to seek new growth drivers as Apple diversifies its suppliers.The company has been exploring investment opportunities in India to tap into its fast-growing consumer market. Hon Hai has also ventured into telecommunication services in Taiwan and into the retail business in China with its own e-commerce platform.

To gain a retail foothold in India, Hon Hai and Chinese e-commerce giant Alibaba Group Holding Ltd. are in talks to jointly invest about $500 million in Indian e-commerce startup Snapdeal.com.

Hon Hai said on Thursday that its second-quarter net profit rose to 25.69 billion New Taiwan dollars (US$798.1 million) from NT$20.19 billion a year earlier. Revenue rose 11% to NT$972.7 billion from NT$879.1 billion.

Hon Hai’s results mirror those of Apple, which last month reported a 38% rise in profit for the fiscal quarter ended June 27. Its iPhone sales fell short of elevated expectations, though, at 47.5 million units, compared with the previous quarter’s 61.2 million.

In the fall Apple is expected to launch iPhones with “Force Touch” technology that can distinguish between a light tap and deep press.

China’s slowing economic growth and recent currency devaluation raise concerns about iPhone demand in the world’s second-largest economy. Greater China—the mainland, Taiwan and Hong Kong—is Apple’s second-largest market by revenue after the Americas. A weaker yuan also will reduce Apple’s China revenue when it is translated into U.S. dollars.

Although the contract manufacturer’s fortunes are still closely tied to Apple’s, Hon Hai’s efforts to diversify its customer base are beginning to pay off.

 Fast-growing Chinese smartphone makers including Xiaomi Corp. and Huawei Technologies contributed to a jump in the earnings at Hon Hai’s 66%-owned FIH Mobile Ltd. unit, which assembles phones and makes metal casings for handset brands other than Apple. FIH Mobile Wednesday posted first-half net profit of US$129.8 million, more than twice the year-earlier $49.9 million.

Separately, smartphone maker HTC Corp.said Thursday it planned to cut 15% of its workforce and slash operating expenses by more than a third as the company has been struggling to attract customers in a maturing smartphone market.

The latest restructuring efforts come after HTC forecast last week a net loss for the third quarter on sluggish demand and weak sales in China. Once the world’s top smartphone maker by volume, HTC in 2013 dropped out of the top 10 largest handset vendors by shipments. The Taiwanese company has in just a few years seen its global market share dwindle to less than 2% from double digits previously.

HTC said it would cut about 2,250 people by the end of this year as part of its plan to reduce operating expenses by 35%.

Source: wsj.com