Bloomberg News

Hon Hai Net Income Falls Amid Economic Slump, Higher Costs

November 01, 2011

(Updates with third-quarter earnings from second paragraph.)

Oct. 31 (Bloomberg) -- Hon Hai Precision Industry Co., the world’s largest contract manufacturer of electronics, posted its fourth consecutive quarter of profit declines as a faltering global recovery hits sales of computers and electronics.

Third-quarter net income fell 8.6 percent to NT$19.2 billion ($641 million), according to a company statement today, from NT$21 billion last year. The average of 11 analysts’ estimates compiled by Bloomberg was for profit of NT$18 billion.

Hon Hai, which manufactures devices for Sony Corp., Hewlett-Packard Co. and Apple Inc., has suffered from a slow economic recovery that’s crimped demand for computers and game machines. Profit may rise this quarter, spurred by Apple’s iPhone 4S and declining costs to move factories.

“We expect margins to continue improving as plant relocation to inland China gradually completes,” Kirk Yang, who rates Hon Hai “overweight” at Barclays Capital in Hong Kong said before the earnings.

Unconsolidated sales, which don’t include revenue from subsidiaries, were little-changed at NT$665.7 billion. Hon Hai, flagship of the Foxconn Technology Group, whose affiliates include Foxconn International Holdings Ltd., Foxconn Technology Corp. and Chimei Innolux Corp., didn’t provide a sales breakdown or explanation of the data.

Nine-month net income fell 16 percent to NT$46.6 billion on unconsolidated sales of NT$1.85 trillion, it said in an exchange filing today.

Moving Factories

Hon Hai shares rose 2 percent to NT$83.3 at the close of trade in Taipei today before the announcement. The stock has lost 22 percent this year, compared with a 15 percent drop in the benchmark Taiex index.

Hon Hai, which employs more than 1 million workers, has borrowed more than NT$17 billion this year as it moves factories to inland China and expands in Brazil to be closer to workers. The company raised wages and hired counselors last year after a series of suicides brought scrutiny from labor groups and clients.

Global shipments of computers climbed 3.2 percent in the third quarter from a year earlier, missing estimates for 5.1 percent growth, Stamford, Connecticut-based Gartner Inc. said Oct. 12. Hon Hai manufactures computers for HP and Dell in China, Mexico and Brazil.

Nintendo Forecast

Nintendo Co. and Sony, which contract with Hon Hai to make their game consoles, face a shrinking market as consumers turn to gaming on tablets, smartphones and social-networking sites. Kyoto, Japan-based Nintendo forecast its first annual loss in 30 years on Oct. 27 after cutting the prices of its 3DS to spur lagging sales.

Apple, which outsources production of its iPad and iPhones to Hon Hai, posted profit last quarter that missed estimates as consumers awaited a new model. Taipei-based Pegatron Corp. shares production of the iPhone.

Hon Hai’s sales and profit may be revived this quarter after the iPhone 4S sold 4 million units in the first weekend and rising costs stabilize after it boosted wages for its Chinese workforce last year.

Profit growth may return this quarter, with net income to climb 2.9 percent to NT$22 billion, according to the average of 11 analyst estimates compiled by Bloomberg.

--Editor: Terje Langeland, Anand Krishnamoorthy.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.


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