* Q4 net profit up 5.6 pct, in line with forecasts
* Q4 gross margin up 1 bp
* Margins in 2013 dependent on iPhone, iPad sales
By Clare Jim
TAIPEI, March 25 Taiwan's Hon Hai Precision
Industry posted a record net profit and lifted margins
in the last quarter as it braced for a weaker performance from
its biggest client, iPad maker Apple Inc.
Hon Hai draws an estimated 60 to 70 percent of its revenue
assembling iPhones and iPads and other work for the
But Apple's revenue has begun to lag market expectations
while analysts say Hon Hai is in a less advantageous position to
profit on key Apple products on the horizon.
"Hon Hai will have less bargaining power for the upcoming
new models and that will weigh on its gross margin," said Yuanta
Securities analyst Vincent Chen.
Both the iPhone 5S, expected to be released in the third
quarter, and a cheaper version for emerging markets are unlikely
to face the production bottlenecks that Hon Hai encountered with
the iPhone 5 last quarter, Chen said.
Those bottlenecks, he added, helped Hon Hai to secure better
profit margins in its supply arrangements with Apple.
Apple's share price tumbled in January when it announced
quarterly revenue and forecasts below Wall Street expectations,
after iPhone sales in the holiday period disappointed.
Hon Hai, whose other businesses include retail and solar
cells, said on Monday net profit in October-December was T$37
billion ($1.24 billion), versus a median forecast of T$36.2
billion from 13 analysts polled by Thomson Reuters I/B/E/S.
Earnings compared with T$35.03 billion in the same period a
year earlier and T$30.3 billion in the third quarter.
Gross margin climbed to 9.6 percent, according to analysts
calculation, compared with 9.5 percent in the previous quarter
and 8.9 percent a year earlier.
Some analysts believe Hon Hai's margins will stabilise or
pick up again from the second quarter, benefiting from a
possible increase in component opportunities with Apple, which
is expected to put more of its orders with major suppliers.
Hon Hai is also moving to cut production costs in China,
while grabbing a bigger market share in large-screen TVs and
reducing operating losses at its handset manufacturing
subsidiary, Foxconn International Holdings Ltd.
"We expect the supply chain to consolidate further,
benefiting volume players such as Hon Hai through more component
orders," said JPMorgan analyst Gokul Hariharan in a research
He said new component opportunities with Apple, primarily
casings, touch panels, adaptors and camera modules, were
expected to add 25 to 35 percent in profit per box for Hon Hai.
But given the company's heavy dependence on Apple, its
revenue growth is likely to remain subdued until new categories
of products emerge from the U.S. device maker, he added.
Hon Hai has been moving its China factories inland in search
of lower labour costs as wages surge in costal cities. The
company also said it froze hiring at Shenzhen, its largest plant
in the country, in February.
Foxconn International Holdings, the world's biggest contract
maker of cellphones, fell into the red in 2012 with a net loss
of $316.4 million due to weak orders from some of its major
Shares of Hon Hai inched down 0.6 percent on Monday before
the results announcement, versus a 0.8 percent rise in the