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Apple supplier Foxconn's first-quarter profit dives below estimates, shares fall

Reuters  |  TAIPEI 

(Reuters) - A dive in quarterly profit at Taiwan's to below estimates saw shares of the supplier fall 3 percent on Tuesday, even after a pledge to boost shareholder returns with a $1.2 billion capital reduction.

The world's largest contract maker reported late on Monday a 14.5 percent decline in first-quarter net profit to T$24.08 billion ($806 million), missing the T$28.71 billion average of nine estimates compiled by

The extent of the drop contrasted with resilient sales of Apple's popular in a climate of waning demand. assembles the bulk of Apple products including iPhones.

Foxconn, formally Hon Hai Precision Industry Co Ltd, did not elaborate on its earnings. Analysts said a stronger local dollar and higher marketing costs may have contributed to the decline.

"We think higher opex (operating expense) could be a new norm for Hon Hai, due to its business diversification," analysts said in a report.

They said higher spending on marketing for new customers as well as research-and-development in networking, cloud computing, television and likely squeezed its operating profit margin to 2.4 percent, below Nomura's 3.0 percent forecast.

has been reducing dependence on Apple through diversification. In 2016, it bought control of Japanese and display

In March, a unit said it would buy U.S. maker for $866 million. Another unit, which makes for cloud computing, plans to list in to raise capital for fifth-generation (5G) network-related projects.

Foxconn shares have underperformed this year - falling around 10 percent versus the broader market's 2.8 percent gain - partly due to investors questioning its reliance on Apple and the prospect of slowing sales growth.

The stock fell as much as 3.4 percent on Tuesday, reversing gains of as much as 6.4 percent on Monday. That rise was buoyed by a plan announced late on Friday to cut equity capital by 20 percent, or T$34.7 billion, to boost shareholder returns.

Foxconn also said it would sell up to T$27 billion in bonds to refinance debt and replenish working capital.

"We think Hon Hai's proposal of cash capital reduction would increase future EPS (earnings per share), but shareholders' cash returns would actually be unchanged, given the reduced cash dividend," analysts said.

Fellow Apple supplier reported a record annual net loss of $2.25 billion on Tuesday, as its U.S. client shifted to rival for X screens.

($1 = 29.8690 dollars)

(Reporting by Lee Chyen Yee in SINGAPORE and Zhang Min in BEIJING; Writing by Jess Macy Yu; Editing by and Christopher Cushing)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, May 15 2018. 12:29 IST