Hon Hai unit issues profit warning

Taipei--FIH Mobile Ltd. (???), a subsidiary of Taiwan-based Hon Hai Precision Industry Co. (??), has issued a profit warning for the six-month period to June.

In a statement filed with Hong Kong Exchanges and Clearing on Tuesday, Hong Kong-listed FIH said it expected to post a net loss of under US$110 million for the first half of the year as the acquisition of Nokia's old feature phone business weighed on its bottom line.

Joining forces with Finland-based HMD Global, FIH completed a deal about three months ago to acquire the Nokia assets from Microsoft Corp. for USS$350 million.

The acquisition price was only a small fraction of the US$7.2 billion Microsoft paid for them in 2014.

The expected loss for the six-month period for FIH, in which Hon Hai owns a roughly 70 percent stake, represented a significant retreat from a net profit of US$20.82 million in the same period of last year, FIH said.

In the statement, FIH attributed the expected lackluster first-half performance to "costs relating to a new business group within the company under a collaboration agreement announced on 18 May, 2016," referring to the deal to buy the Nokia assets.

FIH said it expected to continue to book the costs related to the acquisition in the second half of the year.

Despite the profit warning, however, FIH said its consolidated revenue for the first half of the year could surpass US$4.6 billion, up more than 99 percent from a year earlier.

An aggressive investor in India, FIH made the deal with Microsoft last year in part to support parent Hon Hai's interest in building its presence in the fast growing Indian mobile phone market.

Under the deal, FIH Mobile has acquired Nokia's assets, which involve the technology, manufacturing, design and marketing of cellphones and other handheld devices under the Nokia name, as well as some of Nokia's intellectual property.

Because Hon Hai owns a majority stake in FIH, its profitability is likely to also suffer this year, analysts said.

In 2016, Hon Hai posted a net profit of NT$148.66 (US$4.91 billion), up 1.22 percent from a year earlier, with earnings per share of NT$8.60, compared with NT$8.54 in EPS recorded in 2015.

The 2016 figure was the highest in Hon Hai's history, boosted largely by the launch of the latest iPhones by Apple Inc. in September.

The new iPhones -- the 5.5-inch iPhone 7 Plus and the 4.7-inch iPhone 7 -- which went on sale globally in September, helped Hon Hai command a higher profit margin.

Its bottom line also benefited from foreign exchange gains due to a weaker Taiwan dollar in the fourth quarter, analysts said.

Source: Focus Taiwan News Channel