Mon, Jul 14, 2014 - Page 14 News List

Hon Hai ventures into 4G as it bids to reinvent itself

PIECE BY PIECE:Chairman Terry Gou said a 4G network is a key piece of the firm’s ‘technology puzzle,’ which is being widened with the aim of reversing Hon Hai’s slide

By Lisa Wang  /  Staff reporter

Aside from manufacturing a wide range of hardware used in products such as Apple Inc’s iPhones and Softbank Corp’s “emotional” robots, Hon Hai Precision Industry Co (鴻海精密) is planning to add 4G telecoms services to its portfolio, aiming to first set up a network in Taiwan, with an eye on venturing to China later down the line.

The move to expand into the telecom sector — an intensely service-oriented and highly regulated market in most countries — is an unusual one for a global electronics manufacturer.

Yet service seems to be the core of Hon Hai’s transformation, which chairman Terry Gou (郭台銘) is carrying out in a bid to counteract ever shrinking profit margins and rebuild growth momentum.

“Expanding into the telecom sector is sure to help boost Hon Hai’s profits significantly, especially since hardware prices are falling,” International Data

Corp analyst Andy Yeh (葉振男) said by telephone on Friday.

Hon Hai posted an impressive 2.37 percent profit margin for the first quarter of the year, significantly outperforming PC maker Quanta Compute Inc (廣達) with a margin of 1.34 percent. However, Hon Hai’s figure is still far lower than the 21.61 percent enjoyed by Chunghwa Telecom Co (中華電信).

Hon Hai’s 4G subsidiary, Ambit Microsystems Corp (國碁), secured a 4G license last year that gives it fast and direct access to end consumers.

In May, Ambit acquired a 70 percent stake in local 4G license holder Asia Pacific Telecom Co (亞太電信) for NT$11.7 billion (US$400 million) to help accelerate the deployment of its 4G services.

Having a 4G network is “one of key pieces to Hon Hai’s technology puzzle” as it seeks to develop cutting-edge technologies for users to transmit, share, or store data via the Internet, Gou told shareholders last month.

The company plans to focus on new technologies and higher-margin products, including high-resolution displays, smart devices, LCD TVs, cloud computing technology, mobile commerce, robots and Internet of Things, like wearable devices.

Gou said that Hon Hai is also eying developing software to provide 3D iGPS maps similar to those offered by Google Inc.

All the devices and digital content Hon Hai is eying rely on a 4G network and infrastructure to connect with each other, said Gou, who aims to realize his business blueprint and the company’s transformation within the next five years.

“We can utilize the 4G network to deliver data on and monitor an individual’s health on all sorts of mobile devices for a comparatively lower cost via cloud computing technology. This is very important at a time when most developed societies are aging,” Gou said.

Hon Hai paid NT$20 for each Asia Pacific Telecom share, a 15 percent premium from the floor price of NT$17.44, but the cost is likely to prove worth it as the deal gives Hon Hai a pool of 2.09 million subscribers and a nationwide fiber optical network overnight.

In addition, Asia Pacific Telecom has 10 megahertz (MHz) of bandwidth in a 4G frequency band and Ambit has 20MHz. Once the two companies merge, the new entity will have 30MhZ of 4G bandwidth, allowing it to compete with the nation’s big three telecoms.

The Asia Pacific Telecom deal will also allow Hon Hai to secure more orders to provide telecom and networking equipment that better suits customers’ needs and benefit its telecoms networking subsidiaries, including Tai Tung Communication Co (台通), CyberTAN Technology Inc (建漢) and Microelectronics Technology Inc (台揚), other analysts said.

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