Hon Hai Precision Industry Co (鴻海精密), which assembles Apple Inc’s iPhones, on Friday said its third-quarter net income fell 8.5 percent annually to NT$34.63 billion (US$1.08 billion), dragged by an investment in Sharp Corp and foreign-exchange losses.
Earnings per share were NT$2.01 in the July-to-September quarter, compared with NT$2.42 in the same period last year, the company said.
However, the firm’s results beat the average estimate of NT$33.3 billion forecast by nine analysts polled by Capital IQ.
Hon Hai bought a ¥388.8 billion (US$3.64 billion) 66 percent stake in Sharp on Aug. 12 and started to include the Japanese firm’s earnings on its balance sheet in the third quarter, during which Sharp posted a net loss of ¥17.9 billion.
The company said its non-operating income remained in positive territory last quarter, although it was eroded to some extent by a 3 percent appreciation in the New Taiwan dollar.
Hon Hai, which has not yet filed its latest income statement with the Taiwan Stock Exchange, on Friday declined to reveal exact figures for its Sharp investment loss.
Analysts estimate the loss to be from NT$1 billion to NT$1.2 billion.
The firm’s net profit in the third quarter represented a 95.87 percent increase from the second quarter, Hon Hai said, attributing the improvement to contribution from a major client’s new communication products.
Apple launched the iPhone 7 series in September. Hon Hai is widely believed to have won the largest contract to assemble the iPhone 7 and iPhone 7 Plus models, while Wistron Corp (緯創) also has orders for the iPhone 7 Plus and Pegatron Corp (和碩) for the iPhone 7.
Hon Hai’s gross margin expanded 1.42 percentage points from the previous quarter to hit a record high of 7.44 percent in the third quarter, while its operating margin grew by 1.65 percentage points sequentially to 3.91 percent, as the company posted a 16.5 percent quarterly growth in revenues.
The company said a loss reversal from a previous inventory valuation also helped boost its margins for last quarter.
Market watchers expect rising revenues for this quarter on the back of iPhone sales, with Credit Suisse on Nov. 2 predicting revenues would rise 26 percent quarterly to NT$1.35 trillion and Morgan Stanley on Nov. 1 forecasting revenues would grow 49.53 quarterly to NT$1.6 trillion.
“Overall results were good,” Yuanta Securities Investment Consulting Co (元大投顧) analyst Vincent Chen (陳豊丰) wrote in a client note yesterday, referring to the firm’s third-quarter data.
Chen said the outlook should be reasonably good for Hon Hai going forward, shrugging off concerns about US president-elect Donald Trump’s stated aim of bringing manufacturing jobs back to the US.
Hon Hai manufactures most of its products, including iPhones, for global brands in China.
“The outlook for next year is promising, owing to the newly designed iPhone 8, and partly because of a likely turnaround of Sharp in the first quarter of next year,” he wrote. “In our view, Trump’s goal would not really be feasible for the iPhone in the foreseeable future. It might be possible, but we are unsure when.”
In the first three quarters of this year, Hon Hai’s combined net profit reached NT$79.89 billion, down 14.94 percent from the same period last year, with earnings per share of NT$4.62.
Accumulative sales totaled NT$3.42 trillion in the first 10 months of the year, also down 3.63 percent year-on-year, company data showed.
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