Foxconn profit could rise by 26 percent

Foxconn International Holdings (富士康), a domestic handset maker, may increase profit by 26 percent this year as its customers buy more phones, according to research by Goldman Sachs Group Inc, which is arranging a share sale for the company.

The unit of Hon Hai Precision Industry Co (鴻海精密), Taiwan's biggest electronics maker by sales, is expected to increase profit to US$227.5 million this year from a forecast net income of US$180 million last year, the research said.

UBS AG is also arranging the company's initial public offering in Hong Kong.

Foxconn derives as much as 90 percent of its sales from Nokia Oyj, the world's No. 1 mobile-phone maker, and Motorola Inc, which ranks third. The company wants to increase the amount of money it earns making handsets and parts for other equipment manufacturers.

"Foxconn Holdings can enjoy higher revenue growth than Hon Hai Group's 30 percent growth target," said the research by analysts Henry King and Calvin Huang. The company's growth "is driven by the trend toward increased outsourcing by handset vendors and its gain in market share from its competitors."

Taipei-based Foxconn will set a price range for the sale early next week and may raise as much as US$400 million, bankers involved in the sale said on Monday.

Edward Naylor, a spokesman at the US investment bank, declined to comment on the sale, as did Donna Chan, a spokeswoman from UBS.

The Goldman research said global original equipment manu-facturers may order 45 percent of their handsets from other makers this year, up from 36 percent last year.

Goldman's research said Foxconn should be valued at between 12 to 15 times this year's profit, slightly lower than Nokia, Motorola and Siemens AG, which are trading at 13 times to 18 times the consensus profit for this year, the research said.

Taiwanese handset makers such as Compal Communications Inc (華寶通訊) and BenQ Corp (明基電通), Taiwan's largest mobile-phone maker, are trading at between seven to 10 times their forecast income for this year.

Foxconn, which started operation in 1999, can produce 50 million handsets a month. It has plants in China, Hungary, Mexico and Brazil.

The company, 85.1 percent owned by Hon Hai, initially supplied components to original equipment manufacturers and gradually expanded its business to supply modules and system products.

Nokia and Motorola have lost some market share in terms of handset shipments since 2002, and had less than 48.4 percent of the market at the end of the third quarter of last year. Goldman forecast the two companies would control 49 percent of the market in the fourth quarter of last year and 45.7 percent this year.

Handset shipments from Motorola will increase 11.7 percent this year, exceeding the industry's average of 9.4 percent, while Nokia is expected to ship 8.4 percent more handsets this year, Goldman's research said.