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Hon Hai Third-Quarter Profit Climbs 15% as IPhone Demand Rises

Hon Hai Precision Industry Co., the world’s largest contract manufacturer of electronics, had a 15 percent increase in third-quarter profit as rising sales of Apple Inc. iPhones and Dell Inc. computers offset higher wages.

Net income rose to NT$21 billion ($685 million) in the three months to Sept. 30, from NT$18.3 billion a year earlier, according to Bloomberg calculations based on nine-month earnings filed to the exchange today. The average of 10 analyst estimates compiled by Bloomberg was for profit of NT$21.5 billion.

Hon Hai, flagship of the Foxconn Technology Group which counts Apple and Dell among its clients, raised wages in China and began migrating plants inland to tackle labor problems that resulted in a spate of suicides earlier in the year. Profit margins may improve from this quarter as clients accept higher manufacturing costs, according to Citigroup Inc.

“Hon Hai managed to get price hikes from clients because its chairman, Terry Gou, is giving senior management lower revenue targets, which allows them to demand price hikes without worrying about revenue targets,” Kevin Chang, who rates Hon Hai “buy” at Citigroup in Taipei, wrote in an Oct. 8 report.

Hon Hai shares lost 0.4 percent to NT$116 at the 1:30 p.m. close of trade in Taipei before the announcement. The stock has lost 14 percent this year, lagging behind a 1.2 percent advance in the benchmark Taiex index.

Growth Target

Gou, the 60-year-old founder of Foxconn, halved the annual revenue growth target to 15 percent, from the 30 percent in place for more than a decade, he said in a Sept. 4 interview.

Hon Hai’s unconsolidated sales climbed 72 percent to NT$664 billion, according to Bloomberg calculations based on subtracting six-month earnings from the nine-month data.

Net income for the nine months to Sept. 30 climbed 19 percent to NT$55.7 billion, on a 63 percent increase in unconsolidated sales to NT$1.59 trillion, it said.

Apple, which contracts Foxconn to make its iPhone 4 and iPad, sold 14.1 million handsets during the September quarter, better than the 11 million estimated by Piper Jaffray Cos. analyst Gene Munster. IPad shipments at 4.19 million units were lower than Munster’s 4.5 million estimate.

Dell, whose desktops and servers are made by Foxconn in China and Mexico, on Aug. 19 forecast sales of at least $15.7 billion for the quarter ending October, compared with the $15.5 billion average of estimates compiled by Bloomberg.

Foxconn doubled wages for its production workers in Shenzhen, the southern Chinese region that hosts its largest factories. Base salaries were increased 30 percent to 1,200 yuan ($180) in June and to 2,000 yuan from Oct. 1, as part of plans to reduce employees’ overtime hours.

Inland China

At least 10 workers committed suicide earlier this year, prompting labor groups including China Labor Watch to accuse the company of running a sweatshop that pushes employees to work long hours to earn more money. Foxconn has denied the charges.

To reduce its workforce in Shenzhen, where wages are higher, and locate factories closer to the hometowns of its workers, Foxconn is boosting investment in inland China.

On Oct. 19 Hon Hai announced more than $350 million of new China investments, including $80 million for a tablet computer factory in Chengdu, and at least $50 million for a computer chassis plant in Huizhou.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net.

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