Hon Hai moving on from contract manufacturing
November 28, 2013 Category Uncategorized
Hon Hai Precision Industry’s decision to move away from major client Apple and the lower-value electronics contract manufacturing business is a long-term bet that will improve margins and offset rising labor costs, analysts say. The Taiwanese company, better known by its trading name Foxconn, is building an integrated service package ranging from electronic devices to software applications and cloud computing as it strives to become more consumer-driven. Hon Hai still draws an estimated 40% to 50% of its revenue from assembling iPhones and iPads, a slight decline from 60% a year ago. But analysts said the move was likely to boost profit margins this year and in the longer term. Hon Hai announced a better-than-expected net profit of NTD30.75 billion for the third quarter, higher than a median forecast of NTD25.99 billion by 13 analysts polled. The figure compared with a net profit of NTD16.98 billion in the previous quarter and NTD30.26 billion a year earlier. Operating profit margin rose 1.36 percentage points from the previous quarter to 3.46%. The margin in the third quarter of last year was 3.4%. Improved production efficiency may allow Hon Hai to reduce costs, which could result in improved operating margins, according to JPMorgan Chase. So far this year, Hon Hai has teamed up with Chinese mobile video provider Le TV in a bid to sell large internet-enabled televisions. The company is also setting up a factory in the United States to build televisions, the South China Morning Post reports. It also recently bought a license for the faster, internet-enabled 4G mobile network in Taiwan, a USD311 million investment aimed at linking its software and devices.
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