Foxconn’s FIH Mobile warns of US$110m interim net loss over costs of Nokia handset deal

Foxconn subsidiary FIH Mobile, the top contract manufacturer of smartphones for Xiaomi, expects to record a net loss of about US$110 million for the six months to June 30, as the company is weighed down by its acquisition of Nokia’s old feature phone business.

The profit warning comes about three months after FIH Mobile and Finnish company HMD Global completed their US$350 million purchase of the Nokia assets from Microsoft.

In a regulatory filing after the market closed on Monday, FIH Mobile’s acting chairman Chih Yu Yang said the estimated loss would mark a 628 per cent decline from the company’s US$20.8 million interim net profit last year.

Chih attributed that substantial decline to “costs relating to a new business group within the company under a collaboration agreement announced on 18 May 2016”.

He pointed out, however, that FIH Mobile’s interim revenue this year is forecast to rise 99 per cent to US$4.6 billion, up from US$2.3 billion in the same period last year.

FIH Mobile is a subsidiary of Taiwan-listed Hon Hai Precision Industry, the world’s largest contract electronics manufacturer, known widely under its trade name of Foxconn.

The Hong Kong-traded company agreed in May last year to buy Nokia’s old feature phone business, including a manufacturing facility in Vietnam, from Microsoft under a joint deal with HMD, which took over certain design patents. The transaction closed in December.

Nokia was once the industry leader in feature phones. The term refers to the generation of handsets before smartphones that offered basic functions, such as short messaging service and low-resolution cameras, but no touchscreen, advanced processing power and mobile broadband connectivity.

As part of their deal, patent holder HMD will enter the smartphone industry with a new generation of Nokia-branded smartphones manufactured by FIH Mobile, which also makes smartphones for Oppo and Huawei Technologies.

“Thanks to more project wins in India from both Chinese and Indian brands, and the ramped-up contribution from Nokia, we expect FIH to resume revenue growth of 15 per cent year on year in 2017 from a 16 per cent year on year decline in 2016,” Daiwa Capital Markets analyst Kylie Huang said in a recent report.

Huang has a “hold’ rating on FIH Mobile’s shares, as does Huatai Research analyst Ken Hui.

“We believe it is risky to turn positive on the stock at this moment. FIH is currently devoting significant resources to developing a portfolio of Nokia smartphones,” Hui said.

Shares of FIH Mobile rose 3.3 per cent to close at HK$3.13 on Monday.