Foxconn's profit misses estimates as pivot to cars accelerates

[TAIPEI] Hon Hai Precision Industry Co reported quarterly profit that disappointed investors as the Taiwanese electronics assembly giant accelerated a shift away from its core businesses into making electric vehicles (EVs).

The company also known as Foxconn Technology Group said net income for the quarter ended in December was NT$46 billion (S$2.17 billion), slightly below the NT$50.2 billion average of analyst estimates.

Earnings in the previous three months had been driven mainly by new smartphones from Apple - its largest customer - and as demand for home computing equipment remained elevated. But the Taiwanese assembler is casting around for new growth drivers a year into the pandemic and it's identified electric vehicles as a key emerging industry, joining a rush of technology firms seeking a foothold in auto manufacturing ahead of Apple's own smart vehicle efforts.

Revenue for the three months ended December rose 15 per cent to NT$2 trillion, reflecting contributions from the iPhone 12 series, whose launch last year had been delayed due to Covid-19, previously disclosed figures showed. Sales of all business lines likely grew in the first quarter, the company said in a presentation earlier this month, when it revealed record monthly sales for February.

Robust demand for high-end iPhone models and enduring work-from-home and remote-learning trends make consensus for 30 per cent Q1 sales growth at Hon Hai appear conservative, said Bloomberg analysts Charles Shum and Matthew Kanterman. Meanwhile, the delayed release of the iPhone 12 suggests monthly sales may remain in the double digits throughout H1. The company reported surprisingly strong 84.8 per cent sales growth in February, though versus a low base in the prior year.

In recent months, Foxconn has entered into partnerships with a wide array of carmakers including Zhejiang Geely Holding Group Co, Byton and Fisker in a bid to boost its automotive capabilities. Two light vehicles based on the Foxconn platform will be unveiled in the fourth quarter, while an electric bus may be launched around the same time, chairman Young Liu said in February.

Annual shipments of Hon Hai's EVs may reach 1.1 million units, or around 10 per cent of global share, by 2025, Morgan Stanley estimated this month. Its auto businesses could generate US$35 billion in revenue by that year, according to analysts including Sharon Shih, who lifted their price target for the stock by 29 per cent to NT$168. Shares of Hon Hai have gained more than 80 per cent in the past year, reaching a 40-month high last week.

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