Foxconn faces battle to offset Motorola woes

PUBLISHED : Tuesday, 26 February, 2008, 12:00am
UPDATED : Tuesday, 26 February, 2008, 12:00am


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Foxconn International Holdings, whose shares have fallen 31.5 per cent this year, is struggling to gain more orders from Nokia Corp and Samsung Electronics this year to offset a decline in business from troubled top customer Motorola.

'Last year, we saw an average of 40 per cent growth in revenue from non-Motorola customers such as Nokia and Samsung,' spokesman Vincent Tong said. 'We will surely put more resources on high-growth customers but still treat Motorola as one of our major customers.'

Foxconn would broaden its customer base to avoid reliance on a key customer, Mr Tong said.

He said the potential spin-off of Motorola's handset unit would be positive, aiding fund-raising and restructuring efforts.

By Merrill Lynch's estimate, Motorola last year accounted for 39 per cent of sales at Foxconn - the world's largest contract mobile-handset maker - down from 59 per cent a year ago. However, sales from Nokia are likely to have grown from 32 per cent to 40 per cent, while Sonny Ericsson's would have increased from 5 per cent to 15 per cent.

Motorola, which lost its No2 global ranking to Sony Ericsson last year, said its total sales fell 14.5 per cent to US$36.62 billion last year. It reported a net loss of US$49 million as opposed to a net profit of US$3.66 billion in 2006. Nokia remained the top handset maker.

Foxconn in September last year posted 4.9 per cent growth in sales to US$4.59 billion in the six months to June from a year earlier. Net profit rose 7.3 per cent to US$324 million.

'We have downgraded our rating on Foxconn to 'sell' from 'buy' due to our caution on Motorola's prolonged restructuring and Foxconn's pace in margin trends on slowing industry growth,' Merrill Lynch analyst Tony Tseng said.

Mr Tseng projected that total sales would have grown only 6 per cent to US$11 billion for the year to December from a year earlier, with net profit rising 4.3 per cent to US$749 million.

However, some analysts are optimistic. 'Nokia, Samsung and China brands' outsourcing of orders to Foxconn is more than enough to offset the negative impact from Motorola's downturn, the China labour law and the US economy,' said Frederick Wong, an analyst at BNP Paribas.