Hon Hai to buy HP's Australian plant

Hon Hai Precision Industry Co (鴻海精密), the nation's biggest electronics manufacturer, yesterday said it will buy a computer-assembly plant from Hewlett-Packard Co (HP) to strengthen its partnership with the US computer giant.

"The purchase of HP's Australia plant will deepen our long-term partnership with the company," said a Hon Hai official, who requested not to be named, in a telephone interview with the Taipei Times.

The deal will also strengthen Hon Hai's global logistic capabilities, he said.

Hon Hai now assembles desktop computers for HP, making the world's second-largest computer vendor one of Hon Hai's top five customers.

But the official declined to detail financial arrangement and the factory's capacity. He denied that the company is in talks with HP to buy another computer plant in India.

Most of Hon Hai's factories are in China, with a few more in Czechoslovakia, Hungary and other countries.

"The purchase will help Hon Hai improve its long-term weakness of building a less intensive manufacturing network compared with rivals such as Flextronics International Ltd," said Kirk Yang (楊應超), head of Asian technology hardware research at Citigroup Inc.

Yang, who on May 3 downgraded Hon Hai shares to "sell" from "buy" because of a faltering profit margin, said the deal would not bring huge short-term benefits for Hon Hai.

"Hon Hai is just doing what most EMS [electronics manufacturing service] providers have been doing -- buying factories in exchange for orders for the next two to three years," he said.

The business pattern simply complements most computer vendors' strategy of focusing resources on selling branded computers amid shrinking margins, while gradually selling their factories, he added.

It is, however, too early to say whether Hon Hai will be a winner from the deal since details of the agreement have not been disclosed.

Bill Lan (藍新仁), a fund manager who helps oversee a NT$5 billion fund for Jih Sun Securities Investment Trust Co (日盛投信), said he did not expect the deal to greatly boost Hon Hai's revenues this year as the capacity of HP's Australia plant would be small.

But even a small increase in capacity will give Hon Hai extra strength to overtake Singapore-based Flextronics as the world's top EMS company this year, Lan said.

Hon Hai said revenues rocketed by over 70 percent to NT$184.6 billion in the first four months of this year, compared to NT$107.8 billion during the same period last year.

Jih Sun gave an "out-perform" rating on Hon Hai shares due to the company's stronger growth momentum compared to the nation's two biggest computer makers, Quanta Computer Inc (廣達) and Compal Electronics Inc (仁寶電腦), Lan said.

Hon Hai shares fell 1.62 percent to close at NT$152 on the Taiwan Stock Exchange yesterday.