Hon Hai Precision Industry Co. (2317), the Taiwanese assembler of iPhones and iPads, posted first-quarter profit that missed analysts’ estimates after reporting its biggest revenue drop in at least 13 years.
Net income for the period was NT$16.4 billion ($549 million), the Taipei-based company said in an exchange statement yesterday. The average of 11 estimates compiled by Bloomberg was for NT$19 billion.
Apple Inc., which accounts for about 40 percent of Hon Hai’s sales, posted its first profit drop in a decade and slowest revenue growth in three years for the period. Photographer: David Paul Morris/Bloomberg
Weakening orders for Apple Inc. (AAPL) products and a slowing global computer market drove revenue down 19 percent from a year earlier. Sales may decline further this period as Hon Hai awaits new products to be introduced in the second half.
“Apple’s shipment slowdown, particularly for the iPhone, drove revenue lower which dragged on profits,” said Alberto Moel, who rates Hon Hai outperform at Sanford C. Bernstein in Hong Kong. “Their non-Apple business was also hit dramatically with a decline in the PC market and weak consumer electronics such as games consoles and digital cameras.”
First-quarter revenue dropped to NT$809 billion, Hon Hai reported April 10, missing the average estimate at the time of NT$895 billion. Second-quarter revenue may drop 5.5 percent from a year earlier to NT$843 billion, according to the average of 12 analyst estimates compiled by Bloomberg.
Apple Profit Drop
Operating profit was NT$13.9 billion, missing the NT$21.5 billion average of nine analyst estimates compiled by Bloomberg. The company didn’t provide year-earlier figures after Taiwan switched to a new accounting standard this year.
Apple, which accounts for about 40 percent of Hon Hai’s sales, posted its first profit drop in a decade and slowest revenue growth in three years for the period.
Shares in the Taiwanese company fell 0.5 percent to close at NT$79.20 in Taipei before the earnings announcement. Its 11 percent decline for the year trails a 7.2 percent advance in the benchmark Taiex (TWSE) index. Apple’s shares declined 2.4 percent in New York.
Demand for iPhones and iPads may remain “lukewarm” this quarter, Birdy Lu, who rates Hon Hai buy at Daiwa Securities Group, said in a May 10 report. New products from Apple, production of Sony Corp.’s PlayStation 4, a rebounding PC market and new TVs will probably boost second-half revenue 47 percent from the first six months, Lu said.
Apple’s shipments of iPhones and iPads may drop 24 percent this quarter from the prior period, with the sales volume of iPads dropping from a year earlier for the first time, KGI Securities wrote May 3.
Transformation
“We’re in a transformation from product assembly to more value-added and efficient production which we expect will give better results in the future,” said Simon Hsing, a Taipei-based spokesman for Hon Hai. The company doesn’t hold investor conferences, provide sales breakdowns, or give forecasts.
A NT$260 million investment in the Taiwan Intelligent Fiber Optic Network Consortium will give Hon Hai a 28 percent stake in the Taipei-based company which has a contract to build a high-speed network throughout Taiwan’s largest city, Hsing said. The deal is part of Hon Hai’s plan to diversify into new areas such as electronic commerce, he said.
Hon Hai continues to examine options on a tie-up with Sharp Corp. (6753) after chairman Terry Gou completed his own investment in the Osaka-based company’s large-panel display affiliate last year, Hsing said. Sharp’s talks with Foxconn Technology Group over a planned 67 billion-yen ($658 million) investment in the Japanese electronics maker ended in March without a deal.
Separately, Hon Hai said its board approved a plan to pay a dividend per share of NT$1.50 in cash, and stock equivalent to 10 percent of the amount held. Directors and supervisors won’t be paid a bonus.
To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net