Hon Hai Profit Misses Estimates on Slowing Apple Orders

Hon Hai Precision Industry Co., the world’s biggest contract manufacturer of electronics, posted worse-than-expected profit as orders from Apple Inc. slowed and the computer market suffered its biggest decline ever.

Net income for the first quarter was NT$16.4 billion ($549 million) after sales fell 19 percent from a year earlier, the Taipei-based company said yesterday. The average of 11 estimates compiled by Bloomberg was for profit of NT$19 billion.

Weakening orders for Apple’s iPhones and iPads and the failure of Microsoft Corp.’s Windows 8 to drive PC growth pushed Hon Hai’s revenue down the most in at least 13 years. Sales may decline further this period as Hon Hai waits for new products to be introduced in the second half.

“Apple’s shipment slowdown, particularly for the iPhone, drove revenue lower, which dragged on profits,” said Alberto Moel, who rates Hon Hai outperform at Sanford C. Bernstein in Hong Kong. “Their non-Apple business was also hit dramatically with a decline in the PC market and weak consumer electronics such as games consoles and digital cameras.”

First-quarter revenue dropped to NT$809 billion, Hon Hai reported April 10, missing the average estimate at the time of NT$895 billion. Second-quarter revenue may drop 5.5 percent from a year earlier to NT$843 billion, according to the average of 12 analyst estimates compiled by Bloomberg.

Hon Hai shares fell as much as 2.8 percent to the lowest since Jan. 24 and were down 1.4 percent to NT$78.10 as of 12:28 p.m. in Taipei. Its 12 percent decline for the year trails a 7.5 percent advance in the benchmark Taiex index. Apple shares dropped 2.4 percent, the most in almost four weeks, in New York.

Apple Profit Drop

Operating profit was NT$13.9 billion, missing the NT$21.5 billion average of nine analyst estimates compiled by Bloomberg.

Apple, which accounts for about 40 percent of Hon Hai’s sales, posted its first profit drop in a decade and slowest revenue growth in three years for the period.

Demand for iPhones and iPads may remain “lukewarm” this quarter, Birdy Lu, who rates Hon Hai buy at Daiwa Securities Group, said in a May 10 report. New products from Apple, production of Sony Corp.’s PlayStation 4, a rebounding PC market and new TVs will probably boost second-half revenue 47 percent from the first six months, Lu said.

Apple’s shipments of iPhones and iPads may drop 24 percent this quarter from the prior period, with the sales volume of iPads dropping from a year earlier for the first time, KGI Securities wrote May 3.

Sharp Tie-Up

Global personal computer shipments dropped 13.9 percent in the first quarter from a year earlier, the worst on record, research IDC said April 10.

“We continue to believe HH needs a major restructuring to make it a more efficient company,” Daniel Chang, who rates the stock underperform at Macquarie Group Ltd wrote in a note yesterday. “The rest of HH’s businesses are all struggling. Hence, we believe HH will remain challenged to grow its large revenue base.”

A NT$260 million investment in the Taiwan Intelligent Fiber Optic Network Consortium will give Hon Hai a 28 percent stake in the Taipei-based company, which has a contract to build a high-speed network throughout Taiwan’s largest city, said Simon Hsing, a Taipei-based spokesman for Hon Hai. The deal is part of Hon Hai’s plan to diversify into new areas such as e-commerce, he said.

“We’re in a transformation from product assembly to more value-added and efficient production, which we expect will give better results in the future,” Hsing said. The company doesn’t hold investor conferences, provide sales breakdowns or give forecasts.

Hon Hai continues to examine options on a tie-up with Sharp Corp. after chairman Terry Gou completed his own investment in the Osaka-based company’s large-panel display affiliate last year, Hsing said. Sharp’s talks with Foxconn Technology Group over a planned 67 billion-yen ($658 million) investment in the Japanese electronics maker ended in March without a deal.

Separately, Hon Hai said its board approved a plan to pay a dividend per share of NT$1.50 in cash, and stock equivalent to 10 percent of the amount held. Directors and supervisors won’t be paid a bonus.

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