Apple contractor Foxconn posts below-forecast profit on soaring operating costs

Foxconn earns most of its profits from manufacturing smartphones for Apple and other brands. (Reuters)
Updated 14 August 2018
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Apple contractor Foxconn posts below-forecast profit on soaring operating costs

TAIPEI: Foxconn posted second-quarter net profit well below expectations as a rise in component costs and unsold inventory weighed on the performance of the Apple supplier and world’s top contract electronics maker, analysts said.
The company, formally known as Hon Hai Precision Industry Co. Ltd, reported net profit of T$17.49 billion ($567.25 million) late on Monday, 20 percent short of analyst expectations and slightly below the year-earlier results. Foxconn shares fell more than 3 percent on Tuesday.
Analysts said the results reflected concerns about a loss of momentum in global smartphone sales. Last week, Foxconn unit FIH Mobile Ltd. posted a wider first-half loss and acknowledged that it faced a high risk of saturation in the smartphone market.
Foxconn’s results showed that its gross margin narrowed in the second-quarter in part owing to the cost of carrying unsold inventory of the iPhone X. Overall global smartphone shipments fell 3 percent to 350 million units in the April-June quarter compared with a year earlier, market research firm Strategy Analytics says.
However, Vincent Chen, an analyst at Yuanta Research, predicted a brighter outlook projected by Apple would benefit Foxconn and boost its margins in the third quarter.
Apple has forecast above-consensus revenue for later in the year, when it typically launches new iPhone models. Reports suggest these models will use OLED screens, which can display colors more vividly.
“We expect Hon Hai to be the main assembler of OLED version new iPhones and we believe the OLED iPhone model will see better demand in 2H18F,” Chen said in a research note.
The company’s report also illustrates its moves to diversify by pushing into new areas such as display screens — it bought Sharp Corp. earlier this year — autonomous car startups and investments in cancer research.
Still, Foxconn earns most of its profits from manufacturing smartphones for Apple and other brands and from Foxconn Industrial Internet, a unit that makes networking equipment and smartphone casings, among other things.
“Investment in factory automation and component price hikes capped gross margin,” said Fubon Research analyst Arthur Liao. Foxconn’s operating costs jumped 18.8 percent in the quarter.
Liao noted that Foxconn absorbed some expenses related to the Sharp acquisition this quarter, as well as development costs from setting up a factory in the US, and taking Foxconn Industrial public in June.


IDEX 2019: UAE armed forces sign new defense deals

Updated 19 February 2019
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IDEX 2019: UAE armed forces sign new defense deals

  • Falcon was developed in response to the UAE’s request to replace the Hawk Air Defense System

ABU DHABI: The UAE armed forces has signed $1.17 million worth of defense contracts with local companies and $514.8 million with international companies, military spokesperson Brigadier General Mohammed Al-Hassani said on Tuesday.

The Emirates on Monday also awarded Raytheon a $1.55 billion contract to supply its air force with platform systems to launch missiles.

The agreement was signed at the week-long IDEX military exhibition in Abu Dhabi and followed the award on Sunday of a 1.3 billion-dirham contract to Raytheon to supply the UAE with patriot missiles.

The UAE armed forces signed a total of 7.2 billion dirhams in contracts on Monday, including 5.8 billion dirhams with international companies, Brig. Gen. Mohammed Al-Hassani said, speaking through a translator.

The UAE has signed a total of 12 billion dirhams in contracts since the IDEX exhibition started on Sunday, he said.

Lockheed Martin, Germany’s Diehl Defense, and Sweden’s Saab on Monday launched at IDEX the Falcon air defense weapon system, billed as a replacement to the Hawk system used by countries in the Middle East.

Falcon was developed in response to a UAE request for a replacement for the Hawk system and talks are underway to sell it to the Gulf state, Scott Arnold, Lockheed Martin’s vice president and deputy head of Integrated Air and Missile Defense said.

Weapons sales to the UAE have come under scrutiny over the past year due to the country’s involvement in the Yemen war that has killed tens of thousands of people and pushed the country to the brink of starvation.

The UAE and Saudi Arabia are leading a military coalition, which includes local forces drawn from Yemeni factions, that is trying to restore the internationally recognized government ousted from power in 2014 by the Iran-aligned Houthi movement.