| TAIPEI, June 6
TAIPEI, June 6 Taiwan's Hon Hai Precision
Industry Co plans to split off its connector business
into a separate entity next month as the unit struggles with
dull computer demand, according to two sources familiar with the
The connector-making operation, which generated $2.7 billion
in revenue last year or 2.5 percent of the company's total, was
Hon Hai's primary line of work when it was founded in 1974 and
contributed the "conn" in its trading name Foxconn.
But as margins come under pressure in Hon Hai's traditional
business of assembling gadgets for other companies such as Apple
Inc - which alone provides 60 percent of its revenue -
the world's largest contract electronics manufacturer is
shifting its focus to high-margin, sophisticated components.
The Network Interconnection Business Group (NWinG), which
makes connectors and cables largely for the stagnant PC sector
while more high-tech smartphone connectors tend to come from
Japan, will become an independent entity from July 1, the
The business group, one of 13 in the company, generated T$80
billion ($2.68 billion) in revenue last year, they said. It
returned to the black last year with a small profit and is
expected to continue that performance this year, one of the
sources said, adding that the company will lay off some staff
this month before it becomes a stand-alone entity.
"Orders have dropped a lot compared to a few years ago;
those from Apple have also been declining," the source said.
Other NWinG clients include Intel Corp, Nokia Oyj
, Sony Corp and Google Inc unit
Hon Hai spokesman Simon Hsing said the company would make an
announcement related to the unit's future at the annual
shareholder meeting on June 26 but declined to comment further.
MARGINS UNDER PRESSURE
Hon Hai has also split off its touch panel and camera module
businesses into separate companies over the past two years,
saying that initial public offerings were possible in the
future. But those two units, unlike NWinG, are highly
The sources said they did not know the company's long-term
plans for NWinG.
Hon Hai Chairman Terry Gou first laid out a plan to split
off businesses at an annual shareholders meeting in 2011, along
with other measures to bolster future growth - including the
possible adoption of a holding company structure.
"Splitting the unit off would let Hon Hai's financials look
better," Fubon Securities analyst Arthur Liao said. "Selling it
off could be one option in the future."
Liao said the move would not have much impact on Hon Hai's
hefty share capital, which now stands at T$118 billion.
Market researcher Gartner said global PC shipments in the
first quarter dropped to their lowest in nearly four years while
Barclays Capital forecast second-quarter notebook PC growth
would be muted and might be the worst in 12 years, as the
industry shifts to smartphones and tablets.
Hon Hai's revenue in the first four months of this year
tumbled 16 percent compared with the same period a year ago,
well behind its annual target of 15 percent growth. Net profit
also eased in the first quarter as sales of iPhones and iPads
Hon Hai shares have shed 15.6 percent this year, compared
with a 5 percent rise in the Taiwanese benchmark index.
Among its efforts to diversify away from its core contract
manufacturing business, Hon Hai announced on Monday that it aims
to develop and make devices and applications that build on
Mozilla's Firefox operating system.