Hon Hai Precision Industry Co (鴻海精密) yesterday reported a 19-month high in revenue for last month, with its credit rating unaffected by the recent wage raise in China.
Hon Hai, which makes Sony TVs, HP printers and Apple iPhones, said in a statement to the Taiwan Stock Exchange that its sales last month increased 78.1 percent year-on-year and 6.11 percent month-on-month to NT$163.26 billion (US$5.04 billion), as a result of recovering global demand.
Last month’s figure was the highest since October 2008, when Hon Hai posted NT$169.38 billion in revenue for the month, according to the company’s financial data.
In the first five months of the year, the world’s biggest electronics contract manufacturer, which sells products overseas under the Foxconn (富士康) brand, saw its revenue expand 57.71 percent year-on-year to NT$731.89 billion, the stock exchange filing said.
Yesterday’s figures were released on an unconsolidated basis.
Shares of Hon Hai closed up 3.52 percent at NT$117.50 before the release of the revenue figures.
Hon Hai’s stock dropped 6 percent in the last seven sessions after the company announced wage increases for its Chinese workers twice within a week, compared with a 2.43 percent decline on the benchmark TAIEX during the same period.
Yesterday, Standard & Poor’s (S&P) ratings service said Hon Hai’s credit rating would not immediately be affected by its substantial wage increases, which the company first announced on June 2, with a 30 percent pay raise for its Chinese production-line workers, later announcing on June 6 another 67 percent increase.
“We expect the wage hike will inevitably pressure the company’s margin over the next few quarters,” S&P said in an e-mail yesterday.
But the ratings agency said it expected Hon Hai to maintain its current credit metrics over the next one to two years, thanks to the company’s “ability to relocate its capacity to low cost areas in China and management’s efforts to reduce its reliance on direct labor.”
Hon Hai’s capacity to transfer part of the labor cost increases to its customers is another strength to offset the negative impact of higher labor costs, S&P said.
Analysts said Hon Hai’s pay raise would eventually lead to other Taiwanese companies with operations in China following suit with similar steps.
Alex Yang (楊俊翰), head of Daiwa Capital Markets, said yesterday in a research note that Taiwanese companies need to diversify their production sites, share costs with clients, streamline the supply chain and improve manufacturing efficiency to counter labor cost increases.
Based on Daiwa’s research, Taiwanese companies like Catcher Technology Co (可成), Shin Zu Shing Co (新日興), Merry Electronics Co (美律), Silitech Technology Corp (閎暉), Yulon Motor Co (裕隆) and Cheng Shin Rubber Industries Co (正新) are likely to suffer the most from rising labor costs in China.
But Yang said many of Taiwan’s semiconductor companies and the steel and fertilizer sectors will not be affected by this issue as they have no exposure to the China labor market.
Morgan Stanley Taiwan Ltd analyst Jesse Wang (王嘉樞) said in his report released yesterday that wage hikes would affect investor sentiment and erode the margins of Taiwanese firms, at least in the near term.
Based on the brokerage’s research, the tech sector is more vulnerable than the non-tech sector to a universal wage hike in China, and within the tech sector, downstream hardware would be affected the most, followed by the DRAM/TFT and semiconductor sectors, as hardware manufacturers currently have some 80 percent of their direct labor costs in China, Wang said.
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