Hon Hai Precision Industry Co (鴻海精密), a major assembler of Apple Inc’s iPhones, yesterday saw its share price dip to a monthly low after last quarter’s earnings fell short of investors’ expectations and iPhones sales prospects flagged.
Hon Hai shares sank 1.48 percent to NT$73.30, the lowest since Oct. 17.
Apple’s other local suppliers were not spared from the weak sentiment as their share prices also tumbled.
Pegatron Corp (和碩), which shares orders to assemble the iPhone XR with Hon Hai, saw its shares fall 0.98 percent to NT$50.70.
Camera lens supplier Largan Precision Co (大立光) dropped 0.31 percent to NT$3,190, while iPhone metal casing supplier Catcher Technology Co (可成科技) slid to NT$255.50.
Hon Hai’s quarterly “results missed on weak gross margin and operating profit margin, largely due to the delayed iPhone XR ramp-up,” Vincent Chen (陳豊豐), who tracks Hon Hai for Yuanta Investment Consulting Co (元大投顧), said in a report.
Hon Hai’s gross margin last quarter rose to 5.87 percent, from 5.83 percent a year earlier, but the improvement lagged behind Chen’s estimate of 6.1 percent and a consensus estimate of 6.4 percent, the report said.
Chen attributed the disappointing gross margin mainly to rising labor costs, intensifying pricing competition and weak efficiency, as evidenced by a deferral in the iPhone XR ramp-up.
In addition, electronics manufacturers, which have built high capacities in China, have started shifting production or are building new manufacturing sites elsewhere to circumvent announced 25 percent US levies on Chinese imports, Chen said.
Hon Hai would face the same issue, he said.
As moving production out of China becomes imminent, Hon Hai will see mounting pressure on its gross margin next year, he added.
Moreover, sagging “demand for iPhones suggests a dim outlook for the first half of next year for the [Apple] supply chain,” Chen said.
Apple’s decision not to disclose hardware shipments lent support to a lackluster outlook for iPhone sales growth in the first half of next year, Chen said, adding that it has cut orders to Hon Hai for the iPhone XR, the series’ more affordable model, in the current quarter.
Hon Hai’s revenue growth might start losing steam next month, he said.
The company has reported consecutive monthly revenue growth for the past six months.
In the quarter ended Sept. 30, net profit grew 18.29 percent to NT$24.88 billion (US$804.35 million), compared with NT$21.03 billion in the same period last year, company data showed.
Earnings per share climbed from NT$1.21 to NT$1.57, the highest in about two years, the data showed.
Chen cut his target price for Hon Hai from NT$78 to NT$74 over the next 12 months.
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