Hon Hai to gain control of local handset maker

Hon Hai Precision Industry Co (鴻海精密), the world's biggest electronics-manufacturing service provider, said yesterday that it will obtain a controlling stake in a local contract handset maker for NT$2.5 billion (US$79.8 million) in a bid to enhance its design and development capabilities.

Hon Hai will acquire a 56.48 percent stake, or 84.7 million shares, of Chi Mei Communication Systems Inc (奇美通訊), controlled by Chi Mei Corp (奇美實業), at NT$29.5 per share, through affiliate Transworld Holdings Ltd, the company said in a statement submitted to the Taiwan Stock Exchange Corp.

Transworld is a fully-owned unit of Hon Hai's handset manufacturing arm Foxconn International Holdings Ltd (富士康), which is listed in Hong Kong.

"With the deal we hope to boost Hon Hai's joint design and development competitiveness in the handset segment," spokesman Edmund Ding (丁祈安) said in the statement.

Foxconn International, in which Hon Hai owns a 73 percent stake, now makes handsets for the world's two largest mobile phone vendors, Nokia Oyj and Motorola Inc, with a 14 percent share of the world's contract handset market.

"The deal represents significant progress for Hon Hai in improving its handset design abilities, as Chi Mei Communication owns strong abilities in making high-end mobile phones," said Helen Chen (陳佩君), an analyst with Polaris Securities Co (寶來證券).

Without access to sophisticated technologies, Hon Hai is only capable of assembling handsets for phone vendors at a very slim margin of around 5 percent to 6 percent, while Chi Mei Communication is making smartphones for Motorola, she added.

"The improvement in handset design ability would help Hon Hai deepen the partnership with its customers in the long run," said Peggy Chang (張意珮), an analyst with researcher Topology Research Institute (拓墣產業研究所) in Taipei.

In other words, Hon Hai will have a better chance to make and design high-end phones for existing customers with a margin as high as 10 percent, Chang said.

That would make Hon Hai a growing threat to Taiwan's major contract handset makers, including Compal Communications Inc (華寶通訊), BenQ Corp (明基電通) and Arima Communication Corp (華冠), Chang said.

Compal recently overtook BenQ as Taiwan's biggest handset maker and Motorola's biggest partner in designing and making middle-range handset models.

Hon Hai shares jumped more than 2 percent to NT$152 on the Taiwan Stock Exchange yesterday, surpassing the benchmark TAIEX's rise of 0.79 percent.