Smartphone assembler FIH Mobile warns first-half profit could fall 92 per cent
Company’s shares tumble 21 per cent after profit warning
FIH Mobile, the top assembler of smartphones for Xiaomi, expects profit for the first half of 2016 to plunge by as much as 92 per cent as the global smartphone market continues to slow.
The company, which is part of the Foxconn group of companies controlled by Taiwan’s Hon Hai Precision Industry, also expects revenue to fall 35 per cent compared to the same period last year, missing analyst estimates.
FIH Mobile, which is listed in Hong Kong, saw its share price slide 21 per cent on Friday after the profit warning was issued.
Analysts attribute the decline in profit to a slowing smartphone market, especially for Motorola and Sony smartphones which are also assembled by FIH Mobile.
“We estimate that Lenovo saw Motorola smartphone shipments [fall] around 40 per cent year on year,” Jefferies analysts Ken Hui and Kevin Zhang said in a note. Jefferies downgraded its rating on FIH Mobile from “buy” to “hold”.
A moderate decline in Xiaomi’s smartphone shipments this year has also affected FIH Mobile’s revenue, according to Jefferies.
“Globally, the market is slowing and this is largely due to the slowdown in the growth of mature regions [like China],” said Tay Xiaohan, a senior market analyst at IDC.
China’s smartphone market, one of the world’s largest, was expected to grow a mere 2 per cent this year, Tay said.
“The market [is] saturated and being driven mostly by replacement users now,” she added. “With the slowdown in smartphone shipments, [assemblers] may not see high growth in terms of orders from various vendors.”
However, Tay pointed out that some growth is still expected in India, which is considered an emerging market and a growth driver in the smartphone industry. FIH Mobile has operations in India and also assembles smartphones there.
Neil Wang, China managing director for Frost and Sullivan, predicts global smartphone market growth of 10 per cent this year, but expects the global smartphone market to drop to 5 per cent growth in five years.
“Smartphones have become a standard device for many people around the world, it is a very mature market,” Wang said.
He said that FIH Mobile should focus on industries such as wearables, augmented- and virtual-reality devices, as well as other emerging technology devices to improve its margins.
Jefferies’ Hui and Zhang also expect FIH Mobile to pursue more new businesses in light of the smartphone slowdown, and suggest that ramping up its India business will also help the company’s operating margins. FIH estimates more than 10 per cent of its revenue will come from India this year.