Hon Hai’s second quarter profit tops forecasts but margins tough

City A.M. Reporter
TAIWAN’S Hon Hai Precision Industry is trying to reduce its reliance on Apple, it said yesterday, and is turning its focus to businesses ranging from software development to e-commerce.

Hon Hai said its net profit rose 35 per cent to T$16.98bn (£366.7m) last quarter from a year earlier.

Margins are still under pressure, however.

The firm’s operating margin improved 0.04 percentage points to 2.1 per cent from the previous quarter but was still lower than 2.4 per cent a year ago. Its operating margin was 3.7 per cent in the fourth quarter last year.

“Margins are below consensus; but looking at its business cycle with Apple’s new product launches, Hon Hai should see better net profit and margins in both quarter three and quarter four,” said Yuanta Securities analyst Vincent Chen.

Chen said Hon Hai is also gaining more orders from clients other than Apple, especially from China’s white-box brands, which are helping its sales growth.

The company posted a net profit of T$12.61bn in the same period a year earlier and T$16.35bn in the previous quarter.

Hon Hai draws an estimated 60 per cent of its revenue from assembling Apple phones and tablets, and is expected to record a higher net profit in the third quarter as it ramps up shipments before the new iPhone hits the market in September.

Yet Apple’s growth is threatened fierce competition from Samsung, causing firms like Hon Hai to pull away from reliance on one client.