Hon Hai's Quarterly Profit Slides as Smartphone Demand Wilts

  • The Apple iPhone assembler is set to take over Japan's Sharp
  • Quarterly net income fell for the first time since 2012

Hon Hai Precision Industry Co.’s quarterly profit dropped for the first time in more than three years after the main assembler of Apple Inc.’s devices fell prey to slowing iPhone sales and intensifying competition in contract manufacturing.

The largest member of billionaire Terry Gou’s Foxconn Technology Group reported a 7 percent slide in fourth-quarter net income to NT$52.9 billion ($1.6 billion), compared with the NT$59.1 billion average of analysts’ estimates. The fall in profit was Hon Hai’s first since the second quarter of 2012 on a comparable basis, according to data compiled by Bloomberg.

Hon Hai’s 2015 profit exceeded expectations but it’s grappling with a slowdown in smartphone demand. The Taiwanese company gets half its revenue from Apple, which warned in January of its first quarterly sales decline in over a decade as China decelerates. The iPhone maker has since launched a smaller and cheaper version of its marquee device, which investors are counting on to rejuvenate the business.

Gou is seeking to broaden Foxconn’s remit, transforming the contract manufacturer into a company that also makes key electronics components and devices. Hon Hai and several other Foxconn affiliates on Wednesday announced a deal to take control of Sharp Corp. for about $3.5 billion, adding the Japanese supplier of displays for smartphones to Gou’s corporate empire.

Tough 2016

Profit fell largely “due to slowing assembly work for Apple, its biggest customer,” Jitendra Waral, a Bloomberg Intelligence analyst, wrote before earnings were released. “Competition from rivals such as Pegatron and Wistron for phone-assembly work, along with lower iPad shipments, may have contributed to the decline.”

Researchers at IDC predicted in December that global smartphone growth will dip below 10 percent this year for the first time. Hon Hai’s fourth quarter sales of NT$1.43 trillion -- based on calculations off monthly data -- just missed estimates for NT$1.45 trillion. While the company doesn’t break down revenue or provide forecasts, both Apple and Samsung Electronics Co. have warned that 2016 will be a difficult year for the technology industry.

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