Hon Hai Precision Industry Co (鴻海精密), the world’s largest contract electronics maker, said on Saturday its operating margin for the first quarter of this year on a consolidated basis fell to 1.7 percent from 3.7 percent year-on-year amid rising operating costs.
Market observers said Hon Hai shouldered higher operating expenses largely because of wage hikes in its production facilities in China.
They also cited high costs as a reason for Hon Hai to relocate its production to China’s interior to, cities such as Zhengzhou in Henan Province, and away from the costal city Shenzhen, where employers have witnessed sharp increases in wages.
The analysts added that the company’s shrinking operating profits showed that contract electronics firms such as Hon Hai, which manufacturers iPhones and iPads for Apple Inc, are facing increasing challenges in maintaining their profitability amid fierce competition.
In the first quarter, Hon Hai’s consolidated net profits dropped 19.9 percent from a year earlier to NT$14.4 billion (US$500 million) on sales of NT$729.26 billion, which is actually a 34 percent increase from a year earlier.
The company’s earnings per share on a consolidated basis stood at NT$1.49 in the first quarter.
During the same period, Hon Hai’s gross margin fell to 7.25 percent from the 8.7 percent recorded in the corresponding period of last year.
In related news, Hon Hai said it was in talks with authorities in Brazil. The company wants to gain a foothold in the Latin American country, a move the market believes is aimed at expanding the scale of contract manufacturing services for Apple to boost profit margins.