• Bloomberg


Hon Hai Precision Industry Co. reported an unexpected rise in quarterly earnings after the main assembler of Apple Inc.’s devices rode record iPhone sales during the pivotal holiday shopping period.

The world’s biggest contract manufacturer of electronics reported a 30 percent increase in net income to 68.8 billion Taiwan dollars ($2.3 billion) in the three months ended December, according to Bloomberg calculations derived from previously released data. That surpasses the NT$48.8 billion average of analysts’ estimates.

Hon Hai, better known as Foxconn Technology Group, derives about half its sales from Apple, data compiled by Bloomberg shows. The world’s most valuable company shipped an unprecedented 78.3 million iPhones during the October-December quarter, despite its latest device representing a modest update on its predecessor. Optimism around Apple’s iPhone for 2017 — the 10th anniversary of the iconic device — has driven the Taiwanese company’s stock close to a decade high.

A turnaround at Sharp Corp., which Hon Hai and other units of Foxconn bought last August, is also contributing to the bottom line. The Osaka-based company last month reported its first quarterly profit in over two years.

“The growth came mainly from current iPhone products. New iPhone production will continue to drive Hon Hai’s sales when it starts to make the devices in coming quarters,” said Annabelle Hsu, a supply chain analyst for IDC based in Taipei. “Also, Hon Hai’s investments in other areas are starting to pay back. The business of robots and robotic arms is doing very well.”

Hon Hai has defied a flat-lining mobile market on expectations Apple will use that milestone to introduce its most advanced and popular device yet.

Its revenue could climb 43 percent in the second half of this year from the first as the company starts to assemble the next-generation gadget, Citigroup Inc. analyst William Yang wrote ahead of the earnings. The Taiwanese company’s biggest client may ship 110 million next-generation iPhones in the second half of 2017, up from his earlier estimate of 100 million units.

Among the bells and whistles anticipated in the next iPhone are a sharper, power-efficient organic light-emitting diode screen; glass casing; wireless charging; a second front-facing camera; and enhanced waterproofing, according to Citigroup’s Yang. Hon Hai’s valuation hasn’t quite reflected the full impact of the new iPhone, particularly if it becomes the sole assembler for an OLED-equipped device, he said.

In the short run, Hon Hai is still grappling with a slowdown in its key markets. Billionaire founder Terry Gou is re-tooling Foxconn for the future, installing robots to shore up its manufacturing prowess, while investing in emergent fields from virtual reality to artificial intelligence. He spearheaded the acquisition of Sharp, transforming the ailing Japanese giant into a company that’s more than tripled in value and is now jointly investing billions.

Shares of Hon Hai finished mostly unchanged in Taipei at NT$91 on Friday, before the results were released.

“The expected iPhone shipment growth for 2017 and 2018 should be a growth engine for Hon Hai’s earnings,” David Hsu and Raymond Hsu, analysts with Taiwan Ratings, wrote in a report ahead of the earnings release.

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