Sun, Aug 31, 2008 - Page 11 News List

Hon Hai posts first decrease in seven years

CUTTING INTO PROFITSLabor laws introduced on Jan. 1 mandating minimum wages and severance pay hurt the electronics firm’s second quarter income

BLOOMBERG

Hon Hai Precision Industry Co (鴻海精密), the largest electronics contract manufacturer, posted its first earnings drop in seven years after a global economic slowdown curbed demand for products such as computers and phones.

Second-quarter net income dropped about 24 percent to NT$11.9 billion (US$378 million) from NT$15.6 billion a year earlier, according to Bloomberg calculations based on first-half data released in a statement on Thursday. That compares with the average estimate of NT$14.9 billion in a Bloomberg News survey of eight analysts.

Sales rose about 18 percent to NT$313.6 billion, the slowest growth in more than three years, as shipments to some clients eased and profit at Hon Hai’s Foxconn International Holdings Ltd (富士康控股) unit slumped. New rules introduced this year increased labor expenses, curbing profit.

“All these negatives had been expected by the market, but the magnitude was greater than the market expected,” Henry King (金文衡), an analyst at Goldman Sachs Group Inc in Taipei, wrote in a note after the earnings release.

King, who recommends buying the stock, said that products including Apple Inc’s iPhone and iPod should boost growth in the second half.

Profit for the second quarter was derived from subtracting first-quarter data from first-half earnings. Hon Hai posted a 10 percent decline in net income for the first six months to NT$28 billion.

Hon Hai faces higher costs this year as staff expenses at its Chinese factories rise following the Jan. 1 introduction of new labor laws, which mandate minimum wages and severance pay.

New accounting rules in Taiwan that require expensing of employee share bonuses also added to costs.

Higher tax expenses, spending on research, and increased production costs led Hong Kong-listed Foxconn International, which is 72 percent owned by Hon Hai, to post a 56 percent decline in first-half profit to US$142.2 million.

Hon Hai lost NT$2.5, or 1.5 percent, to NT$160 in Taiwanese trading on Friday. The shares have lost 21 percent this year, compared with a 17 percent decline in the benchmark TAIEX index.

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