Foxconn's Hon Hai Misses Profit Expectations

Apple has been signing contracts with a new supplier, which is bad news for Foxconn.

Hon Hai Precision Industry Co., also known as Foxconn, has posted a quarterly report that failed to meet analyst expectations. The poor showing resulted from a decline in orders from Apple, which has been using another Taiwanese supplier for some production.

Bloomberg BusinessWeek's Tim Culpan reported, "Hon Hai Precision Industry Co., the world’s biggest contract manufacturer of electronics, posted worse-than-expected profit as orders from Apple Inc. (AAPL) slowed and the computer market suffered its biggest decline ever. Net income for the first quarter was NT$16.4 billion ($549 million) after sales fell 19 percent from a year earlier, the Taipei-based company said yesterday. The average of 11 estimates compiled by Bloomberg was for profit of NT$19 billion."

PCWorld's Michael Kan added, "Hon Hai Precision Industry is the main manufacturing arm of Foxconn Technology Group, which is best known as a supplier to U.S. tech giant Apple. The partnership between the two companies has helped fuel Foxconn’s rapid growth in recent years, especially in China where it has over 1.2 million employees. But in this year’s first quarter, sales of Apple’s iPhone 5 have been in decline, which was the main reason for the drop in Hon Hai’s revenue, said Arthur Liao, an analyst with Fubon Securities Investment Services Co. In addition, consumers are buying up Apple’s lower-cost iPad mini over the more profitable iPad, he said."

According to Sarah Mishkin with The Financial Times, "Cracks are appearing in the once unbreakable relationship between Apple and its main manufacturing partner Hon Hai Precision, as the Silicon Valley company switches more work to a rival contract manufacturer. Pegatron, which like Hon Hai is based in Taiwan, has been winning contracts for popular Apple products such as the iPhone 4S and the iPad mini at a time when Hon Hai has been focusing on the launch of the iPhone 5."

Clare Jim with Reuters observed, "Analysts say Pegatron offers more competitive pricing -- at the expense of lower margins -- and appears to be succeeding in pulling in more orders from Apple. Pegatron's announcement last week that it would increase its number of workers in China by up to 40 percent in the second half of the year fuelled market speculation that it would be the sole assembler for a widely expected cheaper iPhone."

Tags: iPhone, iPad, Apple, earnings, Foxconn, profits, suppliers, Taiwan

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