Taiwan's Hon Hai notches third straight quarterly profit rise

[August 13, 2014]  By Michael Gold

TAIPEI (Reuters) - Taiwan's Hon Hai Precision Industry Co Ltd reported a third consecutive quarterly profit gain Wednesday as the world's largest contract maker of electronic goods continued to benefit from demand for products from No.1 client Apple Inc.

Hon Hai, also known as Foxconn, earns as much as 50 percent of revenue assembling Apple devices such as iPhones and iPads, analysts say. To diversify both customers and business, the company has recently bought into telecoms and IT firms.

In the meantime, the widely expected release in the coming months of larger-screen iPhones will keep Apple as Hon Hai's biggest cash cow for the foreseeable future, according to company-watchers.

Still-hot sales of iPhones drove Hon Hai's net profit in April-June to T$20.19 billion ($673 million), versus the T$17.66 billion mean estimate of 13 analysts polled by Reuters.
 

The result compared with the T$19.54 billion of January-March and T$16.98 billion in the second quarter of last year.

Shares of Hon Hai closed up 1.4 percent before the earnings release on Thursday, versus a 0.7 percent rise in the benchmark TAIEX index.

DIVERSIFICATION

The second quarter saw Hon Hai take two leaps in a strategy aimed at reducing dependence on assembling a relatively narrow range of devices for a single customer.
In May, the company said it would buy 23 percent of Taiwanese mobile network provider Asia Pacific Telecom Co Ltd for almost $400 million. Analysts say the purchase was a step toward operating its own telecoms brand on the island.

The following month, Hon Hai said it would buy 4.9 percent of South Korean IT services provider SK C&C Co Ltd for a similar amount.

Daiwa Capital Markets analyst Kylie Huang said these investments were unlikely to change Hon Hai's reliance on contract manufacturing in the near-term.

"It's going to take time for Hon Hai to prove itself in these new fields," Huang said by telephone ahead of the earnings release. "The company is already huge and it's hard to see them growing really rapidly in the near future."

Hon Hai employs over 1 million people at peak manufacturing times throughout Asia, Europe and North America.

(1 US dollar = 30.0050 Taiwan dollar)

(Reporting by Michael Gold; editing by Christopher Cushing and Keiron Henderson)

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