Mon, Apr 20, 2009 - Page 12 News List

Hon Hai chairman Gou sees tough year ahead

RETIREMENT? The head of Taiwan’s largest electronics maker said nothing during Hon Hai’s AGM last week about promises he made in 2007 to retire last year

By Kevin Chen  /  STAFF REPORTER

This year will be a challenging one.

That’s the message that Hon Hai Precision Industry Co (鴻海精密) chairman Terry Gou (郭台銘) gave to his shareholders last week, unveiling a cautious tone among local technology companies regarding the business environment this year.

Hon Hai on Thursday was the first local heavyweight tech firm this year to hold an annual general meeting, to inform shareholders of the company’s operations, financial performance and business outlook.

Based in Tucheng (土城), Taipei County, Hon Hai, the world’s largest electronics maker on a contract basis, reported on April 10 that its first-quarter revenue fell 7.89 percent to NT$278 billion (US$8.22 billion) from a year earlier.

Gou told shareholders on Thursday that the company would stick to the goal of increasing revenue by 30 percent a year this year.

“The goal is tough and very challenging,” local media quoted him as saying. “But we are trying our best.”

At the company’s annual meeting in 2006, Gou said he expected Hon Hai’s revenue would expand by an average rate of 30 percent a year through next year.

Under that aggressive guidance, Hon Hai reported a 28.5-percent increase in revenue in 2006 to NT$868.29 billion, from NT$675.66 billion a year earlier.

The revenue surged 42.4 percent to NT$1.24 trillion in 2007, but only registered a 19.1 percent increase to NT$1.47 trillion last year amid weakening global demand. Yet, coincidentally or not, it has increased by an average rate of 30 percent a year in the three year period from 2006 to this year.

At last week’s meeting, Gou did not talk about overall tech demand as he used to do, nor did he address market share loss from Hon Hai’s handset-making subsidiary, Foxconn International Holdings (富士康), after Nokia Oyj announced last month that it would manufacture more products itself.

Perhaps the most important news from the meeting, except raising cash dividends from NT$0.8 to NT$1.1 per share, was that Gou would not retire until he sees a recovery in Hon Hai share prices. The 58-year-old chairman did not specify what a reasonable share price would be. He also did not touch on earlier promises that he would retire last year.

Hon Hai shares, which ended at NT$89.9 on Friday, have grown by 40 percent since the beginning of the year, compared with a rise of 31.2 percent on the electronics sub-index and an increase of 25.4 percent on the benchmark TAIEX over the same period, data compiled by the Taiwan Stock Exchange showed.

Some analysts were upbeat on Hon Hai’s prospects, buoyed by expectations that the company would gain further market share with new outsourcing orders and see increasing growth momentum thanks to its efforts in vertical integration and business diversification.

Citigroup issued a “buy” rating on Hon Hai and raised its target price for the stock to NT$107, from the previous target price of NT$84.

“We reiterate our long-term positive outlook on Hon Hai driven by the increasing outsourcing pie and Hon Hai’s substantial share gain,” Citigroup Global Markets analyst Kevin Chang (張凱偉) wrote in a research note on Thursday.

Chang expects Hon Hai to see increasing market share with new orders from Dell Inc, Hewlett-Packard Co, Cisco Systems Inc and Huawei Technologies Co (華為技術), the note said.

Deutsche Bank AG reiterated a “buy” rating on Hon Hai stock with a target price of NT$93, while analyst Kao Kuang-cheng (高光正) said in a client note on Friday that Hon Hai’s market share was expected to rise further because of new orders from HP, Dell and Apple Inc.

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