Hon Hai profit shows iPhone delay offset by Sharp gain

Both the gross margin and the operating profit margin missed estimates

TAIPEI • Hon Hai Precision Industry Co felt the squeeze from last year’s delayed launch of Apple Inc’s iPhone X, the latest results from the world’s largest electronics contract manufacturer show. Were it not for a one-time gain of US$2.2 billion (RM8.51 billion) from the sale of Sharp Corp shares, analysts said, it would have been the company’s worst holiday quarter since at least 2010.

Hon Hai reported net income of NT$71.7 billion (RM9.66 billion) in the three months ended December, based on calculations using previously reported earnings. That exceeded the NT$58 billion average estimate of analysts. Fourth-quarter (4Q) revenue reached an all-time high of NT$1.73 trillion. Earnings per share were NT$4.14.

Analysts point to Hon Hai’s December sale of ¥352.5 billion (RM11.98 billion) of Sharp shares to ES Platform LP, a partnership formed by company employees, as the main reason for the iPhone maker’s better than expected results.

“The main profit gains came from the non-operating end. Hon Hai disposed of Sharp’s special shares in the same period, recognising up to NT$66 billion,” Arthur Liao, an analyst with Fubon Securities, wrote in a note on Saturday. “Without this, EPS (earnings per share) in the quarter would only be around NT$1.44.”

Vincent Chen, regional head of research at Yuanta Investment Consulting, said EPS would have been about NT$1.28 without the gain from the Sharp sale, according to a note after Hon Hai earnings last Friday.

Based on the analysts’ calculations, Hon Hai’s 4Q net income would have been less than NT$25 billion without the sale of Sharp shares. That would have been the company’s lowest 4Q figure in seven years. Operating profit was NT$32.4 billion, according to Bloomberg’s calculations.

Both the gross margin and the operating profit margin missed estimates.

Hon Hai shares fell as much as 2.95% in Taipei as of 11am on Saturday, one of two weekend trading days this year.

Full-year net income was NT$138.7 billion, falling for the first time since 2008, as profits took a hit in the second half of

2017 partly on delayed iPhone X shipments. Despite reports of lacklustre demand for the device, Apple CEO Tim Cook said on an earnings call last month that the iPhone X was the best-selling smartphone over the holidays, citing research firm Canalys.

Hon Hai, part of billionaire Terry Gou’s Foxconn Technology Group, is the sole maker of Apple’s priciest gadget.

Hon Hai gets more than half its revenue from Apple but Gou’s looking for ways to expand beyond merely assembling gadgets — especially as the smartphone market sputters. — Bloomberg