Apple Product Sales Power Hon Hai’s Record Profits
Apple (NASDAQ:AAPL) supplier Hon Hai Precision Industry – also known as Foxconn – posted fourth-quarter earnings that beat most analysts’ estimates, reports Reuters. Hon Hai’s fourth-quarter net profit grew to a record NT$42.6 billion ($1.4 billion) from NT$37 billion ($1.2 billion) in the year-ago quarter. A Thomson Reuters survey of thirteen analysts found that the expected net profit mean estimate was NT$40.1 billion. “The iPhone’s continued popularity is still Hon Hai’s biggest driver,” noted Yuanta Securities analyst Vincent Chen via Reuters.
Hon Hai is the biggest contract electronics assembler in the world and makes products for many tech companies, including Hewlett-Packard (NYSE:HPQ) and Amazon (NASDAQ:AMZN). However, its biggest client is Apple and the Cupertino-based company’s record iPhone and iPad sales are credited with driving Hon Hai’s over 13 percent increase in net profit. Apple reported selling a record 51 million iPhones and 26 million iPads in the last quarter of 2013. According to Apple’s latest supplier list, the iPhone maker company uses twenty-nine separate Hon Hai facilities for the assembly of its various products.
According to Bloomberg, Hon Hai’s strong fourth-quarter results were also driven by holiday season sales of Sony’s (NYSE:SNE) PlayStation 4 and Microsoft’s (NASDAQ:MSFT) Xbox One video game consoles. “New products helped drive strong sales while also reducing Hon Hai’s dependence on Apple a bit during the quarter,” Sanford C. Bernstein analyst Alberto Moel told Bloomberg. “Improved efficiency in production of Apple devices helps reduce costs and boost margins.” Although Hon Hai is estimated to still derive around 80 percent of its revenue from its contract electronics assembly business, the Taiwan-based company has made moves to expand its own products and software business.
As reported by Bloomberg last November, Hon Hai revealed plans to spend $30 million over two years in order to build a high-tech manufacturing facility in Harrisburg, Pennsylvania for making and designing its own products. “We’ll go from original component R&D through to a complete high-end production chain,” said Hon Hai chair Terry Gou via Bloomberg. “However this is not, as assumed, manufacturing for a specific brand.”
Hon Hai has also made several strategic partnerships with other major companies. As noted by Reuters, the company recently announced plans to team up and build applications with Mozilla’s Firefox browser. Hon Hai also entered into a five-year strategic partnership with BlackBerry (NASDAQ:BBRY) that was announced in the Canadian smartphone maker’s fiscal 2014 third-quarter results. According to BlackBerry, Hon Hai will “jointly develop and manufacture certain new BlackBerry devices and manage the inventory associated with those devices.”
Hon Hai’s strong fourth-quarter earnings report comes on the heels of a similarly strong fourth-quarter earnings report from Apple supplier Pegatron. Earlier this week, The Wall Street Journal reported that Pegatron’s earnings grew by 22 percent to approximately $110 million in the December quarter from about $90 million in the year-ago quarter.
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