Hon Hai Precision Industry Co’s (鴻海精密) latest investment in South Korea-based SK C&C Co may bring a closer cooperation between the two groups in areas from data center hardware to cloud and telecom services, with an eye toward China, analysts said.
“We believe the cooperation is likely to be just hardware [server and storage] procurement initially,” CIMB Securities Ltd said in a research report on Tuesday.
However, in the longer term, Hon Hai could provide turnkey data center solutions, including servers and storage, cooling systems and power supplies to SK Group, the parent company of SK C&C and South Korea’s third-largest conglomerate, CIMB analysts Wang Wanly (王萬里) and Felix Pan (潘俊宏) said.
Hon Hai, a major assembler of Apple’s iPhone and iPad, on Monday said that it had secured a 4.9 percent stake in the information technology services provider for 380.98 billion won (US$377.93 million), making it the company’s second-largest shareholder.
Hon Hai did not disclose details of the deal, saying only that it is for long-term investment.
Market consensus is that through this deal, Hon Hai could not only strengthen its software abilities, but also obtain potential data center hardware business, given the company’s ambition in the 4G telecom, cloud and big data businesses.
CIMB agreed, saying that data centers are a good-fit service business for Hon Hai, because the firm is familiar with the equipment requirements, ranging from servers and storage to cooling systems to power supplies.
Moreover, it is also one of the easier ways for Hon Hai to join the already competitive local telecom market, the brokerage said.
Hon Hai is a newcomer in the nation’s 4G market, with a smaller subscriber base, after its subsidiary, Ambit Microsystems Corp (國碁), won the “A3” and “B3” frequency blocks in the government’s 4G spectrum auction in October last year.
In late May, the company said it had agreed to hold about a 14 percent share in Asia Pacific Telecom Co (亞太電信) through Ambit instead of a private placement, and Ambit and Asia Pacific Telecom would later plan to negotiate a merger via a share swap.
Even so, Asia Pacific Telecom has just 2 million subscribers, lagging far behind the national “Big Three’s” estimated 7 million to 10 million subscribers. Chunghwa Telecom Co (中華電信), Taiwan Mobile Corp (台灣大哥大) and Far EasTone Telecommunications Co (遠傳電信) are the nation’s leading providers, and launched their 4G services last month.
CIMB said the anticipated cooperation between Hon Hai and SK Group’s SK Telecom Co in 4G services is unlikely to happen in the short term.
“The 4G development in [South] Korea is more advanced than most countries worldwide, especially in data-mining, online transactions and cloud services. SK Telecom is unlikely to share its knowledge with others that easily,” Wang and Pan said.
However, Hon Hai could replicate its data center hardware business experience in China following any collaboration with SK Group, they said, saying that Beijing has planned to invest US$323 billion to improve its domestic broadband infrastructure by 2020, and the Chinese government may require all interested firms to build their data centers there.
“Due to national security concerns, the Chinese government is reluctant to give this business to Western companies,” they said.
For the second half of the year, the most important catalyst for Hon Hai’s business remains the contribution from Apple’s new products, they said, adding that CIMB has raised its iPhone shipment target to 187 million units this year from its previous estimate of 180 million.
As a result, CIMB adjusted upward its earnings per share forecasts for Hon Hai by between 2 percent and 3 percent for this year through 2016 to NT$9.43, NT$10.72 and NT$11.16 respectively, as well as raised its share price target to NT$118 from NT$100.
Hon Hai shares rose 0.98 percent to NT$103 yesterday on the Taiwan Stock Exchange, rising 28.59 percent so far this year.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
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