By Lorraine Luk
HONG KONG-- Hon Hai Precision Industry Co., the world's biggest
contract electronics maker, reported slower earnings growth in the
second quarter as customers held off smartphone purchases in
anticipation of a new Apple iPhone in the fall.
The Taiwan-based iPhone assembler said net profit for the three
months ended June 30 was up 27% from a year earlier, compared with
growth of 56% in the first quarter and 33% in the fourth quarter of
2014.
The slowdown reflects the challenge of depending on Apple for
more than 50% of revenue. Hon Hai, also known by the trade name
Foxconn Technology Group, has built and run large-scale
manufacturing facilities for Apple's products in China, where the
company has struggled with rising wages and labor unrest. The
latest incident to draw scrutiny was the death last week of two
workers at its production base in Zhengzhou, central China.
Hon Hai is also under increasing pressure to seek new growth
drivers as Apple diversifies its suppliers.
The company has been exploring investment opportunities in India
to tap into its fast-growing consumer market. Hon Hai has also
ventured into telecommunication services in Taiwan and into the
retail business in China with its own e-commerce platform.
To gain a retail foothold in India, Hon Hai and Chinese
e-commerce giant Alibaba Group Holding Ltd. are also in talks to
jointly invest about $500 million in Indian e-commerce startup
Snapdeal.com.
Hon Hai said Thursday that its second-quarter net profit rose to
25.69 billion New Taiwan dollars (US$798.1 million) from NT$20.19
billion a year earlier. Revenue rose 11% to NT$972.7 billion from
NT$879.1 billion.
Hon Hai's results mirror those of Apple, which last month
reported a 38% rise in profit for the fiscal quarter ended June 27.
iPhone sales fell short of elevated expectations, though, at 47.5
million units, compared with the previous quarter's 61.2
million.
In the fall Apple is expected to launch iPhones with "Force
Touch" technology that can distinguish between a light tap and deep
press.
China's slowing economic growth and recent currency devaluation
raise concerns about iPhone demand in the world's second-largest
economy. Greater China--the mainland, Taiwan and Hong Kong--is
Apple's second-largest market by revenue after the Americas. A
weaker yuan will also reduce Apple's China revenue when it is
translated into U.S. dollars.
Although the contract manufacturer's fortunes are still closely
tied to Apple's, Hon Hai's efforts to diversify its customer base
are beginning to pay off.
Fast-growing Chinese smartphone makers including Xiaomi Corp.
and Huawei Technologies contributed to a jump in the earnings at
Hon Hai's 66%-owned FIH Mobile Ltd. unit, which assembles phones
and makes metal casings for handset brands other than Apple. FIH
Mobile Wednesday posted first-half net profit of US$129.8 million,
more than twice the year-earlier $49.9 million.
Write to Lorraine Luk at lorraine.luk@wsj.com
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