Hon Hai Precision Industry Co Ltd (鴻海精密), which assembles iPhones and iPads for Apple Inc, yesterday posted a stronger-than-expected net profit for the second quarter, led by a better gross margin and a lower impairment loss of NT$4.5 billion (US$150 million) from its holding in Sharp Corp.
The impairment loss stemmed from the steep decline in Sharp’s share price from ￥550 per share — the price at which Hon Hai agreed in March to buy a 9.8 percent stake in the Japanese electronics giant. Credit Suisse had expected Hon Hai to book NT$6.1 billion in investment losses.
To minimize the loss, Hon Hai is trying to renegotiate more “reasonable” terms for buying Sharp shares, but the talks seem to have come to a standstill as no new agreement was announced on Thursday when company chairman Terry Gou (郭台銘) finished his trip to Osaka, Japan.
In the second quarter, Hon Hai’s consolidated net profit fell 15.48 percent to NT$12.61 billion from the first quarter’s NT$14.92 billion, according to the company’s financial statement.
The results are better than the NT$11 billion in net profit estimated by Yuanta Securities Co (元大證券) analyst Vincent Chen (陳豊丰).
“The gross margin is surprisingly good,” Chen said.
Hon Hai’s gross margin climbed to 7.9 percent in the April-to-June period, surpassing Chen’s estimate of 6.8 percent.
“Apple’s subsidies [for an increase in workers’ pay] may have helped lift Hon Hai’s gross margin,” Chen said.
He forecast a jump in net profit in the current quarter amid expectations that Hon Hai would reach an agreement on a lower purchasing price with Sharp.
In the first six months of the year, the company’s consolidated net profit inched up 0.55 percent to NT$27.53 billion, compared with NT$27.38 billion in the same period last year. Gross margin edged lower to 7.25 percent from 7.26 percent.
Hon Hai's non-operating loss swelled to NT$12.06 billion in the first half of this year, from loss of NT$1.94 billion in the sampe period of last year.
This year's non-operating loss came from Sharp, its Hong Kong-listed handset manufacturing arm Foxconn International Holdings (富士康控股) and local LCD panel maker Chimei Innolux Corp (奇美電子).
Consolidated revenues leapt nearly 59 percent to NT$1.89 trillion in the first half, from NT$1.19 trillion a year ago.
Hon Hai’s stock price dropped 0.82 percent to NT$84.80 yesterday, underperforming the main bourse’s 0.35 percent gain.