Mon, Apr 30, 2012 - Page 12 News List

Net income at Hon Hai crashes 57.3%

LOSSES IN THE FAMILY:Foxconn International has warned that its losses will increase significantly to June as a result of lower demand, unfavorable pricing and higher costs

By Lisa Wang  /  Staff reporter

Hon Hai Precision Industry Co Ltd (鴻海精密), which makes iPhones and iPads for Apple Inc, reported weaker-than-expected quarterly net profits for the last quarter as labor payroll rises and losses at a handset assembly unit added more pressure to the bottom line in the slack season.

On an unconsolidated basis, net income plummeted 57.3 percent quarter-on-quarter to NT$14.92 billion (US$508.7 million), or earnings per share of NT$1.4, compared with NT$35.03 billion and earnings per share of NT$3.18 percent, in the fourth quarter of last year, Hon Hai said on Saturday night.

The numbers were well below the NT$20.6 billion estimated by Barclays Capital and NT$21 billion forecast by Yuanta Securities (元大證券).

Hon Hai’s weak quarterly results could lead to a cut in its full year net profits to earnings per share of less than NT$7, Yuanta Securities said. Barclays predicted earnings per share of NT$10.13.

“The poor results can be -primarily attributed to labor wage increases ranging from 16 percent to 25 percent from February [compared with January],” Yuanta Securities analyst Vincent Chen (陳豊丰) said in research note yesterday. “And Apple might not have compensated [Hon Hai] for it [the rise in pay rise] yet.”

In addition, losses at Hon Hai’s Hong Kong-listed Foxconn International Holdings Ltd (FIH, 富士康控股), which assembles mobile phones for Motorola Inc and Nokia, for the last quarter, exacerbated the already weak profits at its -parent company, Chen said.

On Thursday, FIH warned that its losses would increase significantly in the six-month period to June, compared with the corresponding period last year, as a result of lower customer demand, unfavorable pricing and higher costs, a statement posted on the company’s Web site said.

Terry Gou (郭台銘), chairman of Hon Hai Group (鴻海集團), known as Foxconn Technology Group (富士康科技集團) outside Taiwan, said business would pick up at FIH after customer product migration ended, local cable network Unique Satellite TV reported on Saturday.

Hon Hai, the world’s biggest electronic manufacturing service provider, is the flagship company of the group. Hon Hai holds a 70 percent stake in FIH.

The company’s gross margin shrank to 4 percent last quarter from 4.27 percent in the previous quarter, and its profit margin fell to 0.9 percent from 1.05 percent during the same period.

Hon Hai’s margins would improve slightly this quarter, Chen said, but the bottom line would remain under pressure as a result of tax payments on unappropriated earnings.

The disappointing quarterly net profits would probably weigh on Hon Hai’s stock price today, Chen said, adding that shares in the -company could fall by the daily-limit of 7 percent to below NT$80 from the closing price of NT$99.3 at the end of trading on Friday.

To retain top staff, Hon Hai’s board yesterday approved the issue of 213.78 million new restricted shares, or 2 percent of the company’s total capital, to employees.

The board also gave the go-ahead to a proposed increase in the cash dividend this year to NT$1.5 per share compared with NT$1 per share last year, based on net profits of NT$81.59 billion, or earnings per share of NT$7.65 last year.

The stock dividend will remain unchanged at NT$1 per share.

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