Foxconn, the trading name of the Taiwanese electronic consumer goods manager, Hon Hai Precision Industry, issued a profit warning as controversy continues in the wake of a spate of suicides at it mainland China production sites.
The firm is one of the…
Foxconn, the trading name of the Taiwanese electronic consumer goods manager, Hon Hai Precision Industry, issued a profit warning as controversy continues in the wake of a spate of suicides at it mainland China production sites.
The firm is one of the primary manufacturers of Apple’s iPhone and iPad devices. The world’s biggest contract maker of mobile phones was already the worst performing stock in the Hang Seng index this year, down 38%. It then slid another 7%, after warning that first-half losses would be wider than last year’s.
The company blamed price erosion and a change in its product mix. Sentiment was also hit as Morgan Stanley downgraded its rating on the stock from ‘overweight’ to ‘underweight.’ Goldman Sachs and Chase & Co. followed suit and downgraded the company.
Following the suicides, and the reputational risk impact that it had on both its own and Apple’s public perception, Foxconn raised wages for its workers in Shenzhen by 30% and offered a 66% performance-related pay rise to factory workers from 1 October.
Analysts have said that this hike in wages would impact on the profitability of the company – which also is a major supplier to Nokia and Motorola. Foxconn announced that it is to move its operations inland, an action perceived to be a way to contain costs. It made a net loss of US$19m in the first half of last year.
Although the company is not a takeover target yet, its position has significantly weakened. The likes of Motorola, Apple and Nokia might look elsewhere for manufacturing, especially with the plethora of consumer electronics manufacturer in China.
