By Lorraine Luk
HONG KONG-- Hon Hai Precision Industry Co., the biggest
assembler of Apple Inc. products, said Friday its net profit last
year rose 13%, helped by an increase in iPad and iPhone sales, as
it also announced new investment and fundraising plans.
The world's largest contract manufacturer for electronics,
commonly known as Foxconn Technology Group, also unveiled nearly
$90 million worth of investments in manufacturing and software
development in China, as well as two fundraising measures, as it
bolsters itself for tougher competition and a possible slowdown in
sales.
Taiwan-based Hon Hai, which earns more than 40% of its revenue
from Apple, has been seeking new avenues of growth, as income from
contract manufacturing slows. The company has been making a push
into software development and telecommunications services, and has
also branched out into the retail market by selling its mobile
accessories under its own Coverbank brand.
Hon Hai said its net profit for the 12 months ended Dec 31 rose
to 106.70 billion new Taiwan dollars ($3.50 billion) from 94.76
billion new Taiwan dollars a year earlier. Its revenue rose to 3.95
trillion new Taiwan dollars from 3.91 trillion new Taiwan dollars
in 2012.
Hon Hai's results were underpinned by demand from Cupertino,
Calif.-based Apple, which sold 51 million iPhones in its fiscal
first quarter ended Dec. 28, 2013--up 7% from the same period the
previous year, but still four million units short of analysts'
expectations.
Apple also said it sold a record 26 million iPads in the
quarter, compared with 22.9 million in the year-ago period.
But Apple has been facing stiff competition, and there are
growing concerns about whether it can repeat its successful
innovations in new product categories--as it did with the iPhone in
2007 and the iPad in 2010.
Faced with the possibility of a slowdown in orders from its
biggest customer, Hon Hai has been busy finding ways of trimming
costs to operate more efficiently and improve its profit
margin.
The company, which employs over one million factory workers
across China, is accelerating automation of factories, announcing
plans on Friday to invest $15 million in a robot-manufacturing and
sales unit in China. The company also said it will invest $30
million in a software-development unit and another $42 million to
set up a new trading-and-manufacturing unit for components in
China.
Hon Hai is also expanding manufacturing in lower-cost inland
China, building facilities in the central and western provinces of
Chengdu, Wuhan and Zhengzhou. In those areas, the typical wage
could be two-thirds or less that of the more-developed coastal
provinces, analysts said.
Hon Hai said it plans to raise funds by selling global
depositary receipts to replenish its working capital. Such receipts
are used as a proxy for stock, letting companies raise money in
markets where their securities don't trade.
Hon Hai also said it will issue up to 24 billion new Taiwan
dollars in corporate bonds to repay short-term debt. The company
didn't provide a timetable, or a value for the global depositary
receipt issue.
Turnaround at its handset manufacturing unit, FIH Mobile Ltd.,
also helped boost the company's earnings. FIH Mobile, which is
listed in Hong Kong and controlled by Hon Hai, said last week it
swung to a full-year net profit of $77.7 million after reporting
net losses for the past four years.
FIH Mobile had reported losses as major customers such as Nokia
Corp. and Motorola Inc. continued to lose ground in the
fast-growing smartphone market. However, in a bid to turn around
its operations, FIH recently signed on new customers including
China's Xiaomi, a startup that has rocked the Chinese smartphone
market, and BlackBerry Ltd.
Earlier this week, smaller rival Pegatron said its
fourth-quarter net profit rose 22% as the company benefited from
its growing role as an Apple assembler.
Although Pegatron previously made some older iPhone models, last
year was the first time Pegatron was the primary manufacturer of a
new iPhone model, the 5C, according to people familiar with the
matter.
Write to Lorraine Luk at lorraine.luk@wsj.com
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