Hon Hai shares fall 21%, may lose iPhone orders

BAD NEWS AHEAD?:Fubon said that production of low-priced iPhones might be given to Pegatron, as Hon Hai denied a report Apple returned 5 million iPhones it made

By Kevin Chen  /  Staff reporter

Tue, Apr 23, 2013 - Page 14

Hon Hai Precision Industry Co (鴻海精密) is facing rough times. Since its share price closed at NT$97.5 on Sept. 17 last year after Apple Inc unveiled its iPhone 5, its shares have plunged 21 percent to NT$76.9 yesterday.

The company has counted Apple as its biggest customer and has been hurt recently by growing market concerns of weakening demand for iPhones and iPads as consumers turn to products from Apple’s rivals, such as Samsung Electronics Co.

However, Hon Hai may have more bad news ahead, as an analyst said yesterday this Taiwanese electronics maker may lose production share of “low-price iPhones” to another Taiwanese assembler of Apple products.

“Based on our checks [with supply chain companies], the manufacturing of all the low-priced iPhones will be moved to Pegatron (和碩),” Fubon Securities Co (富邦證券) analyst Arthur Liao (廖顯毅) yesterday said in a report.

Liao said Apple would likely launch a low-priced iPhone in the July-to-September quarter in two versions, under two mobile technology standards, TD-CDMA and WCDMA.

He said that initially, Hon Hai produced the TD-CDMA version for China Mobile Ltd (中國移動), China’s largest telecom operator by subscribers, while Pegatron made the WCDMA smartphone for worldwide companies.

However, under the brokerage’s supply-chain checks, Apple might allocate all of its low-end iPhone production to Pegatron this year, because Hon Hai does not have sufficient research and development resources to devote to multiple Apple projects, including the iPhone 5S, large-sized iPhone, iTV, iPad 5, iPad Mini 2 and the low-end TD-CDMA smartphone.

As a result, the US company requested Hon Hai to drop the low-end TD-CDMA iPhone manufacturing, Liao said in the report.

“This means that Hon Hai will only produce the iPhone 5, 5S and some iPhone 4S models,” he said.

“In addition, the iPad 5 will be delayed to November, due to issues regarding the narrow bezel and materials,” Liao said. “If sales of this product line decline and if Hon Hai has to share iPad Mini orders with Pegatron, then Hon Hai’s top and bottom lines will both suffer.”

Word of Hon Hai’s possible order losses to other rivals, as well as potential shipment delays in the iPhone 5S, low-priced iPhone and iPad Mini 2, have been around for some time, but the company has dismissed such talk as market speculation.

Over the weekend, the company denied that Apple had returned 5 million iPhones produced at Hon Hai’s Chinese plants, after the Chinese-language China Business Journal reported that those handsets were not functioning well or did not meet Apple’s standards for appearance.

Fubon yesterday maintained its “reduce” rating on Hon Hai’s shares and trimmed its target price on the stock to NT$63 from NT$75.

The brokerage also lowered its earnings per share forecasts for Hon Hai to NT$6.27 for this year and NT$6.82 for next year, from NT$7.45 and NT$7.53 respectively, after factoring in the company’s lower orders for iPhone and iPad products.