Sat, Mar 10, 2012 - Page 11 News List

Hon Hai needs more sales growth drivers: Barclays

COMPETITION:While iPads and iPhones could support Hon Hai’s growth this year and next, it would need new growth areas to continue expanding, a report said

Staff Writer, with CNA

Hon Hai Precision Industry Co (鴻海精密) will still be the biggest winner after Apple Inc’s latest iPad launch, but the world’s largest contract electronics maker may need more sales drivers, Barclays Capital said in a report on Thursday.

Unveiled on Wednesday in the US, the new iPad features a higher resolution of 2,048x1,536 pixels, high-speed 4G long-term evolution (LTE) connectivity, a 5-megapixel camera and a faster dual-core A5X processor. The new iPad will be available from Friday next week in the US and nine other countries.

“As we believe Hon Hai is still the exclusive assembler of the iPad, the new product cycle will help Hon Hai the most,” Kirk Yang (楊應超), head of Asia ex-Japan tech hardware research at Barclays Capital, said in the report.

Other component suppliers, such as Hong Kong-listed microphone and mini-speaker manufacturer AAC Technologies Holdings Inc (瑞聲聲學科技控股), as well as camera lens maker Largan Precision Co (大立光) and battery supplier Simplo Technology Co (新普科技) of Taiwan, will also benefit, he said.

Barclays maintained its “overweight” rating on Hon Hai and raised its target price to NT$125 from NT$100, as it expected Apple products would account for 39 percent of Hon Hai’s sales this year.

Hon Hai shares closed up 0.5 percent at NT$101.50 yesterday.

Barclays forecast that 51 million and 70 million units of iPads would be shipped this year and next year respectively, while iPhone shipments were projected to reach 138 million units this year.

However, Yang said Hon Hai would need momentum from other sales in the long term, as the firm faces competition from its peers and a slowdown in PC product sales.

“We believe that the current Apple product lines [mostly iPhones and iPads] can support Hon Hai’s growth this year and probably next year,” Yang said. “However, Hon Hai needs help to maintain its 15 percent topline growth, especially as it is already losing its once exclusive iPhone assembly business to Pegatron Corp (和碩), which we estimate will account for 10-15 percent this year.”

Possible drivers include future Apple product lines, such as Apple TV or next-generation game console upgrades like Microsoft Corp’s Xbox 720 and Sony Corp’s PS4, as well as more LCD TV and smartphone outsourcing, Yang said.

Cloud computing will be another option, given Hon Hai’s strong presence in servers, he said. It could also expand into storage and even software and IT services with its software headquarters in Nanjing, China.

Jeff Pu (蒲得宇), an equity research analyst at Fubon Securities Co (富邦證券), said the new iPad was expected to put more pressure on tablet makers using Google Inc’s Android software and posed risks to some component suppliers.

“With similar pricing, a meaningful performance upgrade and almost immediate availability, we believe that the new iPad will make it even tougher for Android to compete,” Pu said.

Coupled with the increasing likelihood that an iPad mini will be introduced in the second half of the year, he said he expected that Apple would continue to dominate the market.

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