FIH Mobile's fortunes tied to Xiaomi
FIH Mobile, which makes half the smartphones sold by Xiaomi, may soon cap its two-year turnaround effort with up to 100 per cent increase in net profit, thanks to its top mainland client's strong shipment growth.
FIH Mobile, which makes half the smartphones sold by Xiaomi, may soon cap its two-year turnaround effort with up to 100 per cent increase in net profit, thanks to its top mainland client's strong shipment growth.
Xiaomi, which investment banking sources expect to launch a US$1.5 billion Hong Kong share offering early next year, is estimated by Daiwa to account for 30 to 35 per cent of FIH earnings this year and 40 to 50 per cent next year.
Daiwa pointed out that FIH also supplied 70 per cent of metal casings used by Xiaomi.
A former Hong Kong blue chip, FIH said in a regulatory filing last week that its net profit this year is expected to surge 80 to 100 per cent from its US$77.28 million profit last year.
FIH chairman Tong Wen-hsin said in the filing that the company's likely strong earnings growth was attributed to an improved gross profit margin of more than 6 per cent during this year, compared with last year's 4.48 per cent margin.
That was driven by increased operating efficiency, solid control of operating expenses, and better allocation of research and development resources at FIH, part of the Foxconn group of companies under Taiwan's Hon Hai Precision Industry.
FIH had suffered losses in two of the past three years and endured a series of cost-cutting measures as its once-largest customers, Nokia and Motorola, struggled to compete against Apple and Samsung Electronics.
"Today, Xiaomi and other China clients are the main driver of the company's turnaround," Daiwa's Huang said.
Huang, however, added that the preliminary assessment of FIH's net profit for this year was below Daiwa's forecast of 105 per cent year-on-year growth.
The contract smartphone maker's earnings may be offset by order weakness from client Sony, which has scaled back production on its loss-making smartphone subsidiary.
There were also aggressive contract manufacturing and components supply rivals. Taipei-based Inventec and Longcheer, headquartered in Shanghai, are the two other contract assemblers of Xiaomi smartphones. Singapore-traded Hi-P International also supplies metal casings to Xiaomi.
Huang said there was also increased pressure on FIH to meet the ambitious targets of Xiaomi, whose chief executive Lei Jun declared last month that the firm aims to sell 300 million smartphones next year from 70 million this year.
Growing orders from FIH's other mainland clients must also be met as 4G smartphone demand on the mainland continued to rise. Huawei Technologies, the world's second-largest supplier of telecommunications equipment, outsources the production of select smartphone models to FIH.
Other mainland clients of FIH include Meizu Technology and Oppo Electronics.
Technology research firm Canalys reported last month that Xiaomi was the world's third-largest smartphone supplier in the third quarter, behind Samsung Electronics and Apple. On the mainland, the world's biggest market for smartphones, Xiaomi led all brands in the third quarter, followed by Samsung, Lenovo, Huawei and Coolpad.
