Thu, Sep 29, 2011 - Page 11 News List

Hon Hai to cut its work force by 30%, report says

AUTOMATION:Chairman Terry Gou hinted at the cuts in June, when he talked of plans to upgrade and automate facilities as part of Hon Hai’s production relocation in China

By Lisa Wang  /  Staff Reporter

Hon Hai Precision Industry Co (鴻海精密), which makes Apple Inc’s smartphones and tablet computers, aims to cut its work force by 30 percent within the next five years by replacing manual labor with automated systems to reduce costs, the Chinese-language Next Magazine reported yesterday.

The stock price of Hon Hai advanced 1.32 percent to close at NT$69 yesterday, ending four straight days of losses amid optimism over the launch of Apple’s new generation iPhone, with the US firm sending out invitations to the media for an iPhone-related event on Oct. 5.

Overseas fund managers sold Hon Hai shares for a second day yesterday, with net sales reaching 9.42 million shares at the close.

Next Magazine said Hon Hai chairman Terry Gou (郭台銘) had set an internal target of cutting the firm’s work force from 950,000 to 600,000 during a five-year period. The weekly did not mention its source.

Hon Hai booked NT$90.7 billion (US$2.98 billion) in employee payrolls in the first six months of this year, a spike from NT$5.87 billion a year ago, as the number of workers ballooned to current levels from 700,000 partly because of the company’s massive factory relocation to China’s inland provinces from its coastal areas, the report said.

Hon Hai yesterday dismissed Next Magazine’s report, saying it was incorrect, according to a company filing to the Taiwan Stock Exchange.

“Streamlining production is a measure that the company has been adopting to ensure long-term success,” company spokesman Edmund Ding (丁祈安) said in the filing.

Ding also said Hon Hai did not have any plan to raise capital by issuing global depositary receipts, as reported by Next Magazine.

Gou unveiled the five-year plan in June, saying the company would expand its production automation system and upgrade existing factories to reduce manual labor.

“Chinese labor is no longer cheap and young people born in the 1990s no longer want to take tedious jobs at production lines. This [rising labor cost in China] will greatly impact on exporters only taking advantage of cheap labor there,” he said at the time.

Factory upgrades along with improved production yields would help boost the company’s falling gross margin, Gou said, adding that he expected margins to recover in the second half from the first half.

Hon Hai’s relocations plans in China are scheduled to be completed by the end of the year, which should help lift margins as costs drop, he said.

The firms’ gross margin fell to 6.26 percent in the first six months of the year, compared with 8.35 percent in the same period last year, according to the company’s financial statements submitted to the Taiwan Stock Exchange.

Net profit declined about 18 percent to NT$27.38 billion, or NT$2.58 a share, in the first half, from NT$33.57 billion, or NT$3.61 a share, a year ago, the statements showed.

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