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Foxconn stumbles in first steps away from Apple

Reuters

By Robyn Mak

HONG KONG, April 1 ( Breakingviews) - Taiwan'sFoxconn is finding it hard to switch phones. Weak iPhone sales dented quarterly earnings at the world's top contract electronics-maker. To move up the manufacturing chain, boss Terry Gou is reviving storied brands, including Nokia. But a disastrous year at the Finnish handset unit suggests the $32 billionFoxconn has its work cut out.

Earnings at Foxconn, formally known as Hon Hai Precision, tumbled 13 percent from a year earlier to $2 billion in the three months to December. It relies on Apple for nearly half of annual revenue. That makes the company particularly vulnerable to falling iPhone sales as well as Chief Executive Tim Cook's pivot away from hardware to services.

The Nokia gambit is starting to unravel, though. Microsoft bought the ill-fated business in a catastrophic $7.2 billion deal that closed in 2014. Barely two years later, FIH Mobile teamed up with former Nokia bosses to take over the basic-phone unit for $350 million.

Separately, the buyers also inked a 10-year exclusive licensing deal for the Nokia brand to be used on smartphones and tablets.

Buyer's remorse may be sinking in. Ballooning losses at FIH's Nokia division contributed to a full-year net loss of $857 million. The company blamed lack of scale, and a shrinking smartphone market for the dismal performance of new models, including Nokia's infamous banana phone. FIH now says it will stop making Nokia phones with "poor" margins and shutter the related distribution business.

Shares of Foxconn are down by a third over the past year, touching a five-year low. Apple's iPhone woes may have rattled the Taiwanese supplier and its shareholders, but Gou's long slog up the value chain is proving a torment too.

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CONTEXT NEWS

- Contract-electronics maker Hon Hai Precision, also known as Foxconn, on March 29 reported revenue in the three months to December of T$1.81 trillion ($58.6 billion), an increase of 4.6 percent from the same period last year.

- Earnings fell 12.6 percent year-on-year to T$62.6 billion. That compares to the average analyst forecast of T$38.4 billion, according to data from Refinitiv.

- Separately, FIH Mobile, a Foxconn subsidiary that also makes handsets and components, on March 6 reported a net loss of $857 million in 2018, compared to a net loss of $525 million the previous year. The company blamed the poor performance to its division that manufactures and distributes Nokia-branded phones.

- In 2016, FIH bought Microsoft'sNokia feature phone business with another company, Finland-based HMD, for $350 million. The transaction included goodwill of $79.4 million: FIH took an impairment on the full amount in 2018 due to Nokia's "unsatisfactory performance".

FIH Mobile 2018 annual results filing


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