Diversification pays off for Hon Hai
Taiwan's Hon Hai Precision Industry, a major manufacturer of Apple products, posted a forecast-beating net profit in the second quarter as it attempts to diversify its business and client base.
The world's No1 electronics contract maker is trying to reduce its reliance on Apple, whose growth is ebbing in the face of fierce competition from Samsung Electronics, and is turning its focus to businesses ranging from software development to e-commerce.
The Taiwanese company said its net profit increased 35 per cent to NT$16.98 billion (HK$4.4 billion) last quarter from a year earlier, compared with a median forecast of NT$15.49 billion by 12 analysts.
Margins are still under pressure, however. Hon Hai's operating margin improved four basis points to 2.1 per cent from the previous quarter but was still lower than 2.4 per cent a year ago. Its operating margin was 3.7 per cent in the fourth quarter last year.
"Looking at its business cycle with Apple's new product launches, Hon Hai should see better net profit and margins in both the third and fourth quarters," said Yuanta Securities analyst Vincent Chen.
He said Hon Hai was also gaining more orders from clients other than Apple, especially from the mainland's white-box brands, which are helping its sales growth.
Hon Hai draws an estimated 60 per cent of its revenue from assembling Apple phones and tablets, and is expected to record a higher net profit in the third quarter as it ramps up shipments before the new iPhone hits the market next month.
Chairman Terry Gou told shareholders in June that the company's aim to boost revenue 15 per cent this year would be challenging due to slowing global growth and changes in consumer tastes in electronics products.
On Friday, the company reported July sales were 1.7 per cent lower than a year earlier.