Hon Hai’s Profit Beats Estimates With the Help of New iPhone

  • Revenue barely changes as global smartphone market sputters
  • Robots and other technology help boost output efficiency

Hon Hai Precision Industry Co.’s quarterly earnings beat analysts’ estimates as it maintained a tight grip on costs amid the release of Apple Inc.’s latest iPhones.

Apple’s main gadgets assembler reported an 8.7 percent fall in net income to NT$34.6 billion ($1.1 billion) in the three months ended September, Taipei-based Hon Hai said Friday. That compares with the NT$33.8 billion average of analyst estimates compiled by Bloomberg. Sales were little changed NT$1.075 trillion.

The world’s biggest contract manufacturer of electronics has been deploying robots and boosting production efficiency to drive down costs as the smartphone market endures its worst year on record. Apple, its largest customer, shipped a better-than-expected 45.5 million iPhones last quarter and has unveiled a new line of Mac computers. The U.S. company is expected to move toward using more organic light-emitting-diode screens.

“Apple’s new MacBook Pro and Watch should boost near-term momentum. Hon Hai is our top pick among iPhone assemblers,” Thompson Wu, an analyst with Credit Suisse Group AG in Taipei, wrote in a report ahead of the earnings release. “Hon Hai has the greatest leverage to the OLED iPhone super-cycle next year.”

Hon Hai reported results for the first time since acquiring control of struggling Sharp Corp. in the quarter. The company, part of Taiwan’s Foxconn Technology Group, doesn’t provide revenue breakdowns, forecasts or hold investor conferences. Its shares closed 3.1 percent lower on Friday.

Hon Hai has been grappling with the smartphone slowdown, the result of maturing markets and a decelerating Chinese economy. Its fate is intertwined with that of Apple, which is trying to regain investors’ confidence after a less-than-stellar quarterly earnings showing. The iPhone-maker reported its first annual revenue decline since 2001 and forecast sales of $76 billion to $78 billion for the holiday quarter, barely higher than expectations despite arch-rival Samsung Electronics Co.’s issues with the fire-prone Note 7.

Hon Hai is now outfitting some of its plants with robots, nicknamed Foxbots, automating the production process to boost lower per-unit costs.

“Hon Hai’s Foxbot will not only bring in the operational efficiency in the near term but also new business opportunity” in electric vehicle assembly and other areas, Macquarie Capital analysts led by Allen Chang wrote in a report. “We expect Hon Hai to be the early mover and one of the beneficiaries in the manufacturing supply chain.”

Sharp, in which Hon Hai has invested as part of the Foxconn group, anticipates its first annual operating profit in three years after a series of cost-cutting measures. The Japanese electronics giant is investing heavily in next-generation display technology and streamlining its operations and isn’t expected to contribute to Hon Hai’s bottom-line in the short term.

"The short-term profitability of Hon Hai will be impacted by the Sharp acquisition," Zeng Dewei, an analyst from Jih Sun Securities Investment Consulting, wrote in a report.

Hon Hai also announced a number of new investments in deals valued at $365 million. That includes businesses on the Chinese mainland such as an optical lens plant, a photovoltaic power station project and a Beijing-based artificial intelligence startup.

— With assistance by Yuan Gao

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