Aug. 31 (Bloomberg) -- Hon Hai Precision Industry Co., which makes Apple Computer Inc.'s iPod, reported second-quarter profit gained 43 percent on rising demand for music players and handsets.

Net income climbed to NT$12.8 billion ($388 million), beating the NT$11.48 billion median estimate in a Bloomberg News survey of eight analysts. The result was derived by subtracting first-quarter earnings from six-month figures the company gave today. Hon Hai posted a profit of NT$8.9 billion a year earlier.

Terry Gou, Taiwan's second-richest person and Hon Hai's founder, boosted earnings by supplying parts for Motorola Inc.'s Razr phone and Sony Corp.'s PlayStation consoles. Electronics and related products make up a third of Taiwan's exports.

``Hon Hai triumphed by surrounding itself with successful companies,'' said Albert King, who oversees about $10 million as chief investment officer of Prophet Capital Inc. in Taipei. King declined to disclose his holdings.

Sales rose 30 percent to NT$185 billion in the three months ended June 30, from NT$142.7 billion a year earlier. Company spokesman Edmund Ding declined to confirm the derived results.

Shares of Hon Hai, which reported earnings after the 1:30 p.m. trading close, rose 0.5 percent to NT$185.50 in Taipei. The stock has advanced 24 percent this year, outpacing a 1 percent gain in the benchmark Taiex index.

Hon Hai Chairman Gou started the company in 1974 with NT$300,000 to make plastic knobs for television sets. He went into business after graduating from the China College of Marine Technology and Commerce in Taipei. Gou now has a net worth of $4.3 billion, according to Forbes magazine.

Wider Margins

First-half net income climbed 40 percent to NT$22.8 billion and sales expanded 30 percent to NT$359.5 billion.

Net profit margin, or income divided by sales, widened to 6.3 percent in the first half from 5.9 percent a year earlier.

``Hon Hai maintains solid growth by having top electronic brand names among its clients,'' Phil Chen, who manages $154 million, including Hon Hai shares, at Grand Cathay Securities Investment Trust Co. in Taipei.

Hon Hai on Aug. 18 said it will hire more workers and build dormitories in China after Apple found labor practices at one of the Taiwanese company's factories violated a code of conduct. Foxconn Technology Group, controlled by Hon Hai, is a key supplier of iPods, according to Apple.

The investigation ``raised concern Apple could turn to other suppliers to avoid criticisms,'' Chen said.

Hon Hai in July filed a suit in the Shenzhen Intermediate People's Court in southern China against two Chinese journalists for libel over an article about working conditions at one of its factories. Hon Hai today said it lowered the amount of damages it is seeking to 1 yuan (13 cents) from 30 million yuan.

More Cell Phones

Worldwide handset sales may climb 22 percent to 1 billion units this year, researcher Strategy Analytics said in July.

Motorola, the world's second-largest maker of mobile phones, raised mobile-phone shipments by 53 percent in the second quarter to a record 51.9 million.

Hong Kong-listed Foxconn International Holdings Ltd., the mobile-phone making unit of Hon Hai, counts Nokia Oyj, the world's largest handset maker, Motorola and Sony Ericsson Mobile Communications Ltd. among its customers. Hon Hai supplies parts to Foxconn International.

Hon Hai, which already makes parts for the PlayStation 2 and PlayStation Portable game machines, is also a supplier for Sony's new PlayStation 3, according to Kirk Yang, a Hong Kong-based analyst at Citigroup Inc. Sony is scheduled to introduce the PlayStation 3 in November.

To contact the reporter on this story: George Hsu in Taipei at georgehsu@bloomberg.net

Last Updated: August 31, 2006 06:19 EDT