iPhone X delay hurts Hon Hai income, shares fall 2.8%

BEIJING－Hon Hai Precision Industry Co shares fell the most in more than a month after the world's biggest contract maker of electronics posted earnings that missed analyst estimates.

The shares fell as much as 2.8 percent to NT$103 ($3.40) in Taipei, the biggest intraday decline since Sept 20. Net income fell 39 percent to NT$21 billion in the three months ended September, far behind the NT$37.2 billion projected.

That was the largest fall in profit since the final quarter of 2008 for the company and comes amid hiccups that has disrupted production of Apple Inc's iPhone X.

Apple's decision to adopt technically demanding facial-scanning sensors for the iPhone X initially stymied some suppliers and held back business for Hon Hai, which gets more than half its sales from Apple. Hon Hai's operating expenses climbed more than 16 percent in the quarter, squeezing the company's net margins to less than 2 percent.

While Hon Hai is the exclusive assembler of the iPhone X, Apple didn't start selling its marquee device until November, almost two months after the iPhone 8 hit shelves. Foxconn shared work on the cheaper device with other assemblers.

James Yan, research director at Counterpoint Technology Market Research, said: "The delayed production of iPhone X has affected the overall business performance of Hon Hai in the third quarter of this year, but the iPhone X is still a key earning driver for the electronics giant, whose sales are expected to increase in the first quarter of next year."

Yan added that the shipment of iPhone 7/7 Plus drove the growth of Hon Hai in the third quarter last year.

The growing market share of mainland's smartphone vendors from Huawei to Vivo also weighed on Hon Hai's performance, given many assemble their own devices. And while worldwide smartphone shipments grew 5 percent in the September quarter, that was driven by demand for cheaper handsets in emerging markets, according to researcher Counterpoint.

Hon Hai is now shifting its attention from pure electronics assembly, a business plagued by growing expenses and thinning margins. Billionaire founder Terry Gou is installing robots to automate and offset rising labor costs in the mainland, its main base of production. His company is also eyeing manufacturing for the healthcare, automobile and artificial intelligence sectors.

The company also announced its intention to invest $10 billion in the next four years to build a liquid-crystal display panel manufacturing facility in Wisconsin in the United States.

Bloomberg-China Daily