Hon Hai Quarterly Profit Tops Estimates Amid Cost Cutting Drive

(Bloomberg) -- Hon Hai Precision Industry Co., the biggest assembler of iPhones, posted fourth-quarter profit that beat analyst estimates as billionaire Terry Gou cuts costs at his manufacturing giant.

Net income was NT$62.6 billion ($2 billion) in the three months ended December, Hon Hai said in a filing. That compares with the NT$36.6 billion average of estimates compiled by Bloomberg.

Hon Hai, the biggest piece of billionaire Gou’s Foxconn Technology Group, has renewed efforts to reduce costs as it battles shrinking demand for iPhones in China. With Apple accounting for about half its sales, the U.S. company’s woes has triggered a 35 percent slump in the Taipei-based assembler’s share price in the past year.

Simon Chan, an analyst at Bloomberg Intelligence, said new iPhone orders helped Hon Hai’s margin in the fourth quarter.

“Hon Hai’s gross margin probably widened sequentially in 4Q as orders for new smartphones helped improve the assembler’s operating efficiency,” he wrote on March 7. “Weakening prices for components including NAND and DRAM chips could also lower costs.”

Revenue was NT$1.81 trillion in the quarter. Hon Hai isn’t the only part of Gou’s empire to feel the slowdown. FIH Mobile Ltd., controlled by Hon Hai and an assembler for Android vendors including Huawei and Xiaomi, this month posted a full year loss of $857.1 million.

While Apple has sought to reduce its reliance on hardware by pushing into video and music streaming, games and news subscriptions, assemblers such as Hon Hai and Pegatron Corp. rely on unit volumes to drive sales and earnings.

Hon Hai said full-year net income was NT$129.1 billion. That compares with the NT$104.65 billion expected by analysts.

Shares of Hon Hai closed at NT$73.50 in Taipei and have risen 3.8 percent this year compared with a 9.4 percent increase for the benchmark Taiex index.

--With assistance from Cindy Wang.

To contact the reporter on this story: Debby Wu in Taipei at dwu278@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Robert Fenner

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