Mon, Jun 24, 2013 - Page 13 News List

Hon Hai bracing for challenging year ahead

CAUSES FOR CONCERN?Analysts are somewhat cautious on Hon Hai’s prospects because of worries about Apple’s product transition and weakening sales growth

By Kevin Chen  /  Staff reporter

Hon Hai Precision Industry Co (鴻海精密) is facing a challenging year. That is the message the assembler of iPhones and iPads gave to shareholders in a report issued earlier this month ahead of Wednesday’s annual general meeting.

The firm’s accumulated revenue declined 12.59 percent to NT$1.4 trillion (US$46.3 billion) in the first five months of the year from the same period last year, and the world’s largest contract electronics maker said in its annual report that global economic uncertainties and vast changes in the technology industry pose challenges for this year.

Chairman Terry Gou (郭台銘) is expected to inform shareholders of the company’s operations, financial performance and business outlook at the upcoming meeting.

He may shed some light on how the company plans to create more value for shareholders as suggested in the annual report, and confirm if he will stick to the goal of increasing the company’s revenue by 15 percent this year from last year’s NT$3.91 trillion, a record high.

Hon Hai’s performance is mostly dependent on its largest client, Apple Inc, which HSBC Securities Taiwan Corp expects could contribute up to 40 percent of the NT$3.76 trillion that Hon Hai is expected to earn in revenue this year.

Yet, analysts are less upbeat on the company’s prospects because of concerns about Apple’s product transition and weakening sales growth, forecasting the Taiwanese firm’s revenue could contract by up to 4 percent this year from last year. The company also risks losing some of Apple’s outsourcing orders to Taiwanese rival Pegatron Corp (和碩), they say.

At Wednesday’s meeting, Gou is also expected to bring up other issues, including the company’s efforts at vertical integration, factory automation, cloud-computing technology and software development, notably its recent partnership with Firefox developer Mozilla Corp.

He may also talk about the company’s planned 9.9 percent stake in Sharp Corp, which some analysts believe may eventually collapse after no visible progress for more than a year.

Perhaps, what shareholders would like to hear are plans for potential 4G license investment and a rumored spin off of its connector manufacturing business.

Word of Hon Hai’s plans to bid for a 4G-spectrum license in Taiwan have existed for some time, but have never been confirmed.

UBS Securities Asia Ltd said the diversification of a hardware manufacturer like Hon Hai into an Internet service provider could be risky.

“We have seen Hon Hai scale down its retail endeavors before, but this could be even more challenging, as it would need to make significant investments to either build or rent infrastructure,” UBS Securities Taipei-based analyst Arthur Hsieh (謝宗文) said in a note on Wednesday last week.

Fubon Securities Investment Services Co (富邦投顧) analyst Lewis Liu (劉立中) said Hon Hai’s potential bid for a 4G license could be a strategy to seek potential merger targets or strategic alliances with existing operators.

“Newcomers to the 4G market without prior 2G/3G experience will have to invest more than NT$100 billion and cooperate with existing Tier 2 operators to lower the threshold of entry into the oligopolistic telecom industry,” Liu said last Monday. “4G operations will take at least five years to turn a profit.”

As for Hon Hai’s potential connector business split, Hsieh said he did not expect the move to add value to the company, given its high concentration in the declining PC connector market.

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