Hon Hai Precision Industry Co (鴻海精密), a major iPhone assembler, yesterday said its net profit last quarter plummeted 56 percent annually after it booked a substantial non-operating loss from Sharp Corp, in which it holds a 34 percent stake.
Net profit fell to NT$12.83 billion (US$417.4 million) in the first three months of this year, compared with NT$29.45 billion in the same period last year, dragged by an asset loss of NT$17.3 billion from Sharp.
Excluding the non-operating item, Hon Hai’s operating profit rose 11 percent annually to NT$40.52 billion, from NT$36.67 billion a year earlier.
Photo: Ann Wang, Reuters
Gross margin and operating margin climbed to 6.04 percent and 2.77 percent respectively, from 6.02 percent and 2.61 percent a year earlier.
As the biggest single investor of Sharp, Hon Hai has asked the Japanese electronics company to improve its operations and financial situation to protect the interests of Hon Hai shareholders, company chief financial officer David Huang (黃德財) told investors via teleconference.
Hon Hai does not rule out asking for a reshuffle of Sharp’s management team, Huang said.
Hon Hai has accumulated gains of NT$40 billion since investing in Sharp in 2016, he said.
Compared with the final quarter of last year, Hon Hai’s net profit dipped 68 percent from NT$39.98 billion.
Hon Hai expects revenue to decline this quarter both quarterly and annually, as the COVID-19 pandemic-driven consumption of consumer electronics has ended and demand outlook remains dim, due to an ongoing inventory correction, company chairman Young Liu (劉揚偉) told investors.
Seasonal factors also need to be considered, as the second quarter is usually a slack period, he said.
Hon Hai expects demand for its consumer electronics to decline sequentially this quarter, he added.
Demand for its cloud and networking products and computing products would be flat on a quarterly basis, while demand for components and other products would grow sequentially, he added.
For the whole of this year, revenue would be little changed from last year, Liu said, maintaining his forecast from three months ago, citing the impact of geopolitical tensions, high inflation and macroeconomic uncertainty.
“As visibility remains low, we are conservative about the business outlook,” Liu said.
As enterprises have scaled back server demand, Hon Hai cut its full-year forecast for the cloud and networking business to an annual contraction, he said.
Ongoing inventory digestion has also contributed to the downward revision, he added.
Regarding the setback in the company’s US$170 million partnership with Lordstown Motors Corp, Liu said Hon Hai would make good use of its electric vehicle (EV) factory in Ohio, no matter how its dispute with the US firm is resolved.
Earlier this month, Lordstown Motors said that it might be forced to cease operations after Hon Hai said it is prepared to pull out of a production partnership with the EV maker.
“We remain open to continued dialogue to find the best solution for each other,” Liu said.
The deal with Lordstown Motors, along with the US$230 million purchase of the former General Motors Co factory in Ohio, is part of Hon Hai’s plan to strengthen its position as a provider of EV production capacity and technology.
“We are taking a multicustomer approach to optimize and allocate this capacity we have in Ohio,” Liu said, adding that the US’ recently enacted Inflation Reduction Act has made the factory more attractive.
Hon Hai has set ambitious targets for its auto business, betting that it can capture 5 percent market share by 2025.
“The next two years are a period of active courtship of new customers,” Liu said.
Additional reporting by Bloomberg
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