Foxconn International Holdings (FIH), the world's largest contract manufacturer of mobile telephones, plans to consolidate resources and sell assets to parent company Hon Hai Precision Industry after posting a sharp fall in earnings.
'Our alarming setback in 2010 has created a sense of urgency in the organisation,' chairman and chief executive Samuel Chin Wai-leung said in a filing with the Hong Kong stock exchange.
Taipei-based Hon Hai, the world's biggest electronics manufacturing services provider known by the trade name 'Foxconn Technology Group', has a controlling 70.58 per cent stake in the Hong Kong- listed FIH.
There are five publicly traded firms among the many subsidiaries and affiliates of Hon Hai with operations on the mainland. The group's Taiwan-listed companies include thermal solutions supplier Foxconn Technology, semiconductor-manufacturing equipment and light-emitting diode assembler Foxsemicon Integrated Technology, printed circuit board maker Pan-International Industrial and flat-panel displays provider Chimei Innolux.
FIH yesterday reported a net loss of US$218 million for last year, representing a 659 per cent fall from its net profit of US$39 million in 2009.
Chin said falling handset prices due to intense market competition by the major global brands had put pressure on FIH's results, despite efforts to diversify its customer base and sources of revenue.
The company has among its top-shelf clients Apple, Nokia, Sony Ericsson and Motorola.
'Higher manufacturing overhead resulting primarily from lower utilisation of facilities and relocation, changes in product mix, impairment losses, continued long-term investment in research and development activities, as well as higher consolidated income tax also affected our financial performance,' Chin said.
Revenue decreased 8.2 per cent to US$6.63 billion from US$7.21 billion in the previous year. Basic loss per share reached 3.06 US cents.
Shares of FIH dropped 4.5 per cent to finish at HK$4.67 yesterday, their lowest close since hitting HK$4.05 on April 29, 2009.
To trim its fixed expenses and move away from high-cost production areas, FIH last year continued a relocation programme it started in 2008 by focusing on plant expansion activities in Beijing, Tianjin and Langfang, Hebei province. It also initiated discussions to transfer some underused assets to other enterprises of Hon Hai.
FIH, through subsidiary Grand Champion Trading, agreed on March 18 to sell its entire equity interest in handset-manufacturing enterprise Foxconn Precision Electronics (Taiyuan) for 463.27 million yuan (HK$550.4 million) in cash to China Prime Rich Holdings, a wholly owned subsidiary of Hon Hai.
The transaction, which includes the transfer of land and buildings in Taiyuan, Shanxi province, is subject to the approval of independent shareholders and the relevant government authorities in Taiwan and on the mainland.
Chin said the deal would allow Hon Hai to further expand in Taiyuan, while FIH focused on improving services to existing clients and signing up new customers.
A report by Yuanta Securities, however, said there was 'limited opportunity' for FIH to secure new clients in the near term.
FIH reported a net loss of US$218 million last year, representing an annual decline in earnings of as much as: 659%