Foxconn posts record profits on Apple’s aggressive product refreshes

By , Mar 25, 2013

tim cook foxconn

Hon Hai Precision Industry, better known in the Western world as Foxconn, is Apple’s favorite manufacturer that assembles a lot of its products, with Pegatron taking care of the rest. Foxconn also helps a number of other tech giants build and assemble their gadgets.

As Apple is its most visible high-volume client, Foxconn’s earnings are often scrutinized for hints of Apple’s sales performance. Today, Foxconn reported a record quarterly profit on increased manufacturing efficiency and output of Apple’s iPhones and iPads, after having solved production bottlenecks in the prior quarter.

The increased revenue and improved profit margins also could mean that Foxconn may have had some room to push Apple for better pricing, Bloomberg reports…

Gross margin measures the ratio of sales less cost of goods sold.

According to the publication, Foxconn’s consolidated revenue for the quarter went up six percent to NT$1.14 trillion, or $38.19 billion, while net income climbed 5.6 percent to NT$37 billion, or about $1.2 billion.

Foxconn earnings

The full-year 2012 net income climbed sixteen percent to NT$94.8 billion, or $3.18 billion, while revenue climbed thirteen percent to a record NT$3.9 trillion, or $130.64 billion.

Apple, which contracts Foxconn to make its iPhones and iPads, reported gross margin of 38.6 percent for the three months through December, the lowest in two years, an indication it’s paying more for components and assembly.

Hon Hai’s profit margins usually rise when Apple’s fall, Bloomberg News previously reported.

The report goes on to note the obvious, that iPhone 5 sales are expected to drop ahead of an iPhone 5S introduction, in turn negatively impacting Foxconn’s next quarter.

Apple also atypically announced no new product(s) in the first quarter.

As for Foxconn’s ongoing attempts to acquire a stake in Apple’s screen supplier Sharp, the company faces a stalemate after Samsung announced similar plans.

Making matters worse, Foxconn and Sharp have been unable to agree on “issues including price, management control and company strategy” for months now.

Bloomberg also quotes an analyst who states that Sharp’s TV panel factory called Sakai Display, which Foxconn CEO Terry Gou bought with his own money, remains the key focus.

Terry Gou doesn’t really care about Sharp anymore, he only cares about Sakai. If he can’t direct or dictate things at Sharp, then the only thing left is technology and he may not get access to that either.

Last week, some analysts sent Apple shares down on speculation that orders to suppliers were the worst on record, but Foxconn’s earnings have proved these naysayers wrong.

iPhone 5 (manufacturing process 005)

Hon Hai’s parent, Foxconn International Holdings Limited, did report a net loss of $90 million for the second half of 2012 versus an estimated $49 million loss and Citigrup analysts were quick to contribute that to the “very high production ramp up cost for the iPhone 5 metal casing / module assembly and the subsequent iPhone 5 project delay due to weak end demand.”

Citi also expects a low-end iPhone with a plastic casing in July, estimating a total of 60 million units by year’s end. Notably, Foxconn said recently it will add 5,000 new jobs in automated production, e-commerce and robots, possibly hinting at impending Apple product launches as we head into the summer.

Budget iPhone (Martin Hajek 001)

My colleague Ed did a write-up earlier this morning explaining that Apple’s lower margins are easily explainable with high initial costs associated with a flurry of product launches in past six months - the iPhone 5, third and fourth-generation iPads and the iPad mini.

Because of lower margins, analysts are bracing themselves for the first negative income growth in ten years, but also project a record revenue for the Cupertino firm.

Apple’s fiscal 2013 second-quarter ends this month. For the fiscal 2012, Apple reported north of $40 billion in profits.

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