Foxconn firm forecast to retain lion's share of Apple supply contracts
Taiwanese company's size advantages are likely to prevail even as the US technology giant attempts to diversify its production base
Hon Hai Precision Industry, the world's biggest electronics manufacturing services provider, is predicted to remain the largest supplier to Apple, despite recent efforts by the American technology giant to diversify its production base.
A report by Bernstein Research said Apple pushed forward diversification over the past 12 months by adding Pegatron as a supplier of its iPhone and iPad mini lines, as well as potentially qualifying other manufacturers.
Hon Hai, however, has a compelling size advantage over its competitors. The company has about 1 million employees at its factories on the mainland, against Pegatron's 178,000.
Alberto Moel, a senior analyst at Bernstein, said: "We expect Hon Hai to remain Apple's predominant electronics manufacturing services [EMS] provider for the next two to three years at least.
"Given Apple's [product] volumes, we believe it would be difficult for other EMS and original design manufacturers to make a dent in iPhone or iPad orders without going through major capacity expansion, and putting that additional capacity to work on lower-margin Apple orders," Moel said.
Bernstein estimates that Hon Hai, which is based in Taiwan, can continue to maintain about 80 per cent of Apple's iPhone and iPad contract manufacturing business. Hon Hai operates more than 200 holding companies, subsidiaries and divisions collectively known under the trade name of Foxconn Technology Group. They include the Hong Kong-listed FIH Mobile.
Apple outsources 100 per cent of its production to Asia. While Hon Hai has the majority of iPhone and iPad orders, it has also shared production of iPod and Mac computers with the contractors Quanta and Pegatron.
With that hefty share of supply contracts, Apple has been the main driver of Hon Hai's fast revenue growth over the past three years.
Moel estimated that Apple accounted for 41 per cent of Hon Hai's revenue last year, when it reached a record high of NT$3.9 trillion (HK$1 trillion) and yielded a net profit of NT$94.8 billion.
Last month Hon Hai's founder and chairman, Terry Gou Tai-ming, unfazed by tepid global economic conditions and increased competition, guaranteed shareholders higher profits than last year.
"Hon Hai's business will continue to grow," Gou declared.
Moel said Bernstein agreed with that assessment. He said the company's margin expansion would continue, as more manufacturing is done inland, yield rates for new products are improved and the components it supplies in Apple products increase.