The Hon Hai Group’s (鴻海集團) planned investment in Asia Pacific Telecom Co (亞太電信) has prompted analysts to re-examine the Foxconn-brand company’s telecommunications strategy and its future industry position.
While the partnership could help Hon Hai in its foray into the 4G field, it is expected to have limited profit contributions in the near term, analysts said.
However, the partnership is essential to Hon Hai’s long-term business transformation, they said.
“Hon Hai’s telco strategy could have much bigger underlying implications for the transformation of its business long-term, instead of simply increasing its hardware sales,” Citigroup Global Markets Inc analyst Wei Chen (陳思維) said in a client note issued on Tuesday.
On Monday night, Hon Hai Precision Industry Co’s (鴻海精密) telecom subsidiary, Ambit Microsystems Corp (國碁電子), said it would spend NT$11.67 billion (US$387.1 million) to acquire 70 percent, or 583 million common shares, of Asia Pacific Telecom’s private placement at NT$20 per share.
The purchase will give Ambit a nearly 14 percent stake in Asia Pacific Telecom, making it the firm’s largest shareholder, surpassing the Taiwan Railways Administration’s (台鐵) 12 percent.
After that, the two companies will negotiate a merger via a share swap, according to their separate stock exchange filings.
Chen said the planned merger between Ambit and Asia Pacific Telecom could see Hon Hai’s hardware sales migrate to a “subsidized business model” in the upcoming era of Internet of Things, while the new telecom business could become a key channel for Hon Hai to sell various electronic devices.
Moreover, the company could provide services or targeted advertising based on valuable information on consumer behavior and other data, which are collected from its telecom operations, Chen said.
“We believe Hon Hai’s end-game could be in big data and the Internet of things,” he said.
Another analyst at Deutsche Bank said the transaction might be more expensive than expected, but the deal is very important to Hon Hai in terms of strategic significance.
“We see the significant synergies from the acquisition to help Hon Hai successfully penetrate into the 4G and cloud [data centers, intranet] businesses,” Deutsche Bank analyst Andrew Chang (張家福) said.
Chang said the new partnership with Asia Pacific Telecom would allow Hon Hai to offer “one-stop shopping” — from manufacturing to design, distribution and sales — for its smartphone and networking brand clients.
In addition, the company will see rising opportunity in the long run by leveraging Taiwan Railways Administration to further build its intranet and networking infrastructure business around the nation, he said.
JPMorgan analysts led by Gokul Hariharan said that Hon Hai’s new strategy in the telecom business is unlikely to lift its bottom line any time soon.
“Taiwan telco market has seen two new entrants, Hon Hai and Ting Hsin (頂新), in the past 12 months, which could affect returns adversely. This business has the prospect to be a cash generative one, but the period of consolidation could again be painful given the resources behind both new entrants,” they said in a research note on Tuesday.
Ting Hsin International Group’s subsidiary, Taiwan Star Cellular Corp (台灣之星), announced in November last year that it would merge local peer, Vibo Telecom Inc (威寶電信), in preparation for the upcoming 4G service launch.
Hon Hai will still have to largely rely on Apple Inc’s product line-up and non-Apple businesses such as BlackBerry Ltd’s smartphones and Sony Corp’s game consoles to boost its profitability this year, they added.
Hon Hai shares rose 0.65 percent to NT$93.40 yesterday in Taipei trading, outperforming the broader market by 22.5 percent so far this year.
DOLLAR CHALLENGE: BRICS countries’ growing share of global GDP threatens the US dollar’s dominance, which some member states seek to displace for world trade US president-elect Donald Trump on Saturday threatened 100 percent tariffs against a bloc of nine nations if they act to undermine the US dollar. His threat was directed at countries in the so-called BRICS alliance, which consists of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates. Turkey, Azerbaijan and Malaysia have applied to become members and several other countries have expressed interest in joining. While the US dollar is by far the most-used currency in global business and has survived past challenges to its preeminence, members of the alliance and other developing nations say they are fed
LIMITED MEASURES: The proposed restrictions on Chinese chip exports are weaker than previously considered, following lobbying by major US firms, sources said US President Joe Biden’s administration is weighing additional curbs on sales of semiconductor equipment and artificial intelligence (AI) memory chips to China that would escalate the US crackdown on Beijing’s tech ambitions, but stop short of some stricter measures previously considered, said sources familiar with the matter. The restrictions could be unveiled as soon as next week, said the sources, who emphasized that the timing and contours of the rules have changed several times, and that nothing is final until they are published. The measures follow months of deliberations by US officials, negotiations with allies in Japan and the Netherlands, and
Qualcomm Inc’s interest in pursuing an acquisition of Intel Corp has cooled, people familiar with the matter said, upending what would have likely been one of the largest technology deals of all time. The complexities associated with acquiring all of Intel has made a deal less attractive to Qualcomm, said some of the people, asking not to be identified discussing confidential matters. It is always possible Qualcomm looks at pieces of Intel instead or rekindles its interest later, they added. Representatives for Qualcomm and Intel declined to comment. Qualcomm made a preliminary approach to Intel on a possible takeover, Bloomberg News and other media
Foxconn Technology Group (富士康科技集團) yesterday said it expects any impact of new tariffs from US president-elect Donald Trump to hit the company less than its rivals, citing its global manufacturing footprint. Young Liu (劉揚偉), chairman of the contract manufacturer and key Apple Inc supplier, told reporters after a forum in Taipei that it saw the primary impact of any fresh tariffs falling on its clients because its business model is based on contract manufacturing. “Clients may decide to shift production locations, but looking at Foxconn’s global footprint, we are ahead. As a result, the impact on us is likely smaller compared to
RSS