The increasing popularity of large-screen Apple iPhones has boosted the fortunes of Hon Hai Precision Industry Co., the solo ODM partner and assembler of iPhone 6 Plus with its record high first-quarter profit in the last ten years with a 56% rise in earnings. This staggering growth overtook the 33% earnings improvement in the fourth quarter of the last fiscal year which was a highly profitable quarter for the Taiwanese company. Trading as Foxconn Technology Group, the Taiwanese electronics manufacturer derives majority of its revenue from its manufacturing contract with Apple Inc. (AAPL, Financial).
The Impressive performance
The Tucheng-New Taipei-based multinational is the world’s largest electronics contractor manufacturer building major products like Blackberry, Xbox One, iPad, iPhones, PlayStation 4 and Kindle for large information technology and electronics companies of America, Japan and Europe. In its first quarterly report of 2015, the multinational has doubled its dividend from 6 cents in 2014 to 12 cents representing 43% of its profit earned in 2014 and which rose from 22% recorded in 2013. With the 40% rise in unit sales of the Apple smartphones propelled by the popular large display of iPhone 6 series introduced last fall, its assembler reaped the benefits with a net profit of $998 million in the quarter ended March of the fiscal year 2015 and reported a 15% surge in revenue in the quarter.
Hon Hai has also capitalised on the fast-growing Chinese smartphone market with a 66% stake in FIH Mobile Ltd. (FXCNF, Financial), the Hong Kong-based manufacturing company that reported an impressive annual profit of $169 million in March this year by offering assembly services to non-Apple phones by telecom majors like Xiaomi Corp. and Huawei Technology Co. The April revenue of Hon Hai rose by 20% owing to the iPhone sales momentum.
It was reported in December 2014 that following a high profile business strategy meeting with the world’s biggest asset manager, BlackRock Inc. (BLK, Financial), Hon Hai CEO Terry Gou was advised to increase the dividend distributed to shareholders by utilising the cash resources of nearly $22 billion held at that time. The company has paid only 19% of its 2013 profits to shareholders, a much lower value than the average 60% paid by its Taiwanese peers.
Coming soon
While facing stiff competition from fellow Apple assembler Pegatron Corp., which holds a better defect-free rate and almost usurped the latest Apple contract and with rising labor costs in China, the manufacturing giant has been exploring opportunities to diversify into mobile software and telecommunication services and e-commerce with the development of an online retail platform in China. Its subsidiary, FIH Mobile Ltd. has recently announced a photo software venture to target markets in South Asia especially India in partnership with a Chinese photo software company. Analysts are closely watching the diversification initiatives with apprehension owing to the technology giant’s lack of experience in these sectors and shareholders and investors are hoping to reap higher benefits from the booming smartphone market.
