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Hon Hai second-quarter profit beats forecasts, but margins recovery still slow
August 13, 2013 / 9:48 AM / 4 years ago

Hon Hai second-quarter profit beats forecasts, but margins recovery still slow

Hon Hai Precision Industry Co. Ltd. Chairman Terry Gou holds an iPad of Apple Inc. as he speaks at a news conference as part of the Guiyang International Forum 2013 Annual Meeting in Guiyang, Guizhou province July 21, 2013. REUTERS/China Daily

TAIPEI (Reuters) - Taiwan’s Hon Hai Precision Industry Co Ltd (2317.TW), a major manufacturer of Apple Inc (AAPL.O) products, posted a forecast-beating net profit in the second quarter as it attempts to diversify its business and client base.

The world’s No.1 electronics contract maker is trying to reduce its reliance on Apple, whose growth is ebbing in the face of fierce competition from Samsung Electronics Co Ltd (005930.KS), and is turning its focus to businesses ranging from software development to e-commerce.

The Taiwanese company said its net profit rose 35 percent to T$16.98 billion ($567.15 million) last quarter from a year earlier, compared with a median forecast of T$15.49 billion by 12 analysts polled by Thomson Reuters I/B/E/S.

Margins are still under pressure, however.

Hon Hai’s operating margin improved 4 basis points to 2.1 percent from the previous quarter but was still lower than 2.4 percent a year ago. Its operating margin was 3.7 percent in the fourth quarter last year.

“Margins are below consensus; but looking at its business cycle with Apple’s new product launches, Hon Hai should see better net profit and margins in both Q3 and Q4,” said Yuanta Securities analyst Vincent Chen.

Chen said Hon Hai is also gaining more orders from clients other than Apple, especially from China’s white-box brands, which are helping its sales growth.

The company posted a net profit of T$12.61 billion in the same period a year earlier and T$16.35 billion in the previous quarter.

Hon Hai draws an estimated 60 percent of its revenue from assembling Apple phones and tablets, and is expected to record a higher net profit in the third quarter as it ramps up shipments before the new iPhone hits the market in September.

A return to profit of its subsidiary FIH Mobile Ltd (2038.HK) will also lift earnings. FIH, the world’s largest maker of mobile phones for brands like Nokia NOK1V.HE, is on track to post a full-year net profit after moving back into the black in the first half.

Hon Hai Chairman Terry Gou told shareholders in June that the company’s aim to boost revenue by 15 percent this year would be challenging due to slowing global growth and changes in consumer tastes in electronics products.

On Friday, the company reported July sales were 1.7 percent lower than a year earlier.

Shares in Hon Hai climbed 2.1 percent on Tuesday ahead of the earnings data. That compared with a 1.1 percent rise in the broader market .TWII. The stock has lost about 11 percent so far this year.

Reporting by Clare Jim; Editing by Stephen Coates

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