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May 29, 2017

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Hon Hai unit's profit warning hurts shares

TAIPEI -- In addition to the impact of a disappointing sales outlook given by Apple Inc., shares of Hon Hai Precision Industry Co., which assembles iPads and iPhones, encountered more pressure Thursday following a profit warning from its Hong Kong-listed subsidiary, dealers said.

Investors feared that losses to be incurred by the subsidiary — Foxconn International Holdings Ltd. (FIH) — for 2012 will erode Hon Hai's bottom line, they said. Currently, Hon Hai owns about 70 percent of FIH.

Shares of Hon Hai closed down 2.94 percent at NT$82.50 (US$2.84) that day, while the weighted index on the Taiwan Stock Exchange ended down 0.62 percent at 7,695.99 points.

Hon Hai shares opened lower after Apple's lower-than-expected sales forecast for the current quarter, and selling escalated as investors also took into account FIH's profit warning, which said the subsidiary could swing to a loss for 2012 from a net profit of US$72.80 million recorded in 2011.

In a statement filed with the Hong Kong stock exchange a day earlier, FIH said the expected full-year consolidated losses are largely the result of weakening demand from some of its clients.

FIH makes cellphones for international brands such as Nokia, Research in Motion and Motorola, as well as for major Chinese vendors, including Huawei Technologies Co. and ZTE Corp.

Market analysts said FIH's international brand customers have lost market shares to Apple and South Korea's Samsung.

FIH said unfavorable pricing changes, increasing costs and charges on some of its assets also attributed to a decline of the company's gross margin, which exacerbated the losses for 2012.

In the first half of last year, FIH incurred US$226 million in net loss on a consolidated basis.

The contract cellphone maker said, however, that it expects the loss for the second half of the year to be smaller than in the first half due to continuous efforts to enhance its operating efficiency, cost rationalization, resource optimization and asset disposal.

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