Hon Hai to maintain growth despite lower forecast: Gou

Terry Gou, founder and top executive of Taiwan's largest manufacturing conglomerate and the world's biggest contract manufacturer of electronics, confirmed that the group's projected long-term annual growth target for the coming decade has been halved to 15 percent from 30 percent.

The lower growth forecast and rising labor costs have prompted many securities analysts to slash the target prices for Hon Hai shares and those of affiliated enterprises.

Analysts at Morgan Chase Securities took the first move to sharply lower the anticipated Hon Hai stock prices to NT$119 from NT$160 per share by June 2011. They also lowered the rating for the shares to neutral from buy.

They said Gou and the group are facing the challenge of higher labor costs as its large army of employees in China will get huge pay hikes starting on Oct. 1.

The group will also have to dole out huge funds for the operations of substantially moving production facilities to inland cities in China.

The analysts will continue maintaining close monitoring over the changes in gross profits to be generated by various enterprises in the group.

In an interview at his office in Shenzhen, China, with Bloomberg BusinessWeek, Gou said the anticipated annual growth rate has to be reduced by half as demand for Apple Inc. iPhones and iPads fails to offset slowing computer sales.

But he explained that the forecast was made on a premise based on the existing products before the appearance of extremely popular products with the “killer” status.

Gou added that the projection does not cover the annual growth rates for the group's new products like notebook PCs and LCD TV sets.

Stressing the group's sustained expansion for the future, he asked, “How many companies have grown this big can still grow 30 percent each year?” He said, “Fifteen percent growth is also big enough.”

Gou, 59, already made similar statements earlier this year. He thought that a 15 percent growth rate for a company with annual sales revenues of NT$2 trillion would translate into a increase of NT$300 billion in sales while the additional gain would amount to NT$450 billion for a company of NT$3 trillion, equivalent to creating a brand new enterprise that can rank among the top 20 companies in Taiwan.

The combined revenues of Hon Hai enterprises are widely projected to reach NT$2.8 trillion this year.

Despite the lower growth projects for the coming decades, Gou expressed his usual fighting spirit to meet all challenges ahead.

He said in the interview that he plans to keep his job until his one-year-old daughter gets married.

Executives at the group said Hon Hai Precision Industry Co. and affiliated firms, including Foxconn abroad, aim to speed up the process of automating production to reduce reliance on laborers.

Although the group is expected to increase hirings in the inland areas in China for the near future, the executives have started feasibility studies on establishing fully automated plants overseas, even including proper sites in the United States, according to industry sources.

The stock price of Hon Hai Precision opened 4.5 percent lower at NT$106.5 per share on the Taiwan stock market following the news of slashed long-term annual growth rate. But the price recovered later to close at NT$108.5 a share.

But stock price of the group's Pan-International Industrial Corp. staged a strong and dramatic rally to soar 6.2 percent from an earlier dive of 3.2 percent.

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