Hon Hai Precision Industry Co’s (鴻海精密) purchase of Cisco Systems Inc’s set-top box plant in Juarez, Mexico, would guarantee it more networking solutions orders and higher operating margins, Citigroup said yesterday.
Despite the news of the purchase of the set-top box facility, shares of the Tucheng District (土城), New Taipei City (新北市)-based company were little changed in Taipei trading yesterday, rising 0.68 percent to NT$89.1. The stock has fallen 29.57 percent from this year’s session high of NT$126.5 in February.
“We note that networking business has long been one of the most profitable businesses within Hon Hai, so the Cisco acquisition should also help 2012 margin,” Citigroup Global Markets analyst Kevin Chang (張凱偉) said in a note.
On Monday, Cisco announced it was selling its Juarez facility to Foxconn Technology Group (富士康集團) — also known as Hon Hai in Taiwan — as part of the US company’s effort to streamline its operations, according to a statement posted on its Web site.
Hon Hai confirmed the deal in a filing sent to the Taiwan Stock Exchange yesterday, saying that it had purchased the Juarez plant from Cisco System’s subsidiary Scientific-Atlanta LLC through a Hon Hai subsidiary, PCE Paragon Solutions Kft.
“Through this strategic alignment with Cisco, we will be able to leverage the operation’s unrivalled talent, technology and expertise in video and telco infrastructure to broaden our end-to-end vertical supply chain services in the video, broadband, networking, and telecommunications infrastructure sectors,” Michael Ling (凌志平), general manager of Foxconn’s Communication and Network Solutions Business Group (CNSBG), said in a statement.
The transaction is subject to regulatory approvals and was expected to close by October, Hon Hai said, without providing financial details of the transaction because of confidentiality agreements.
Citigroup said the pricing should be “favorable” to Hon Hai because Cisco is facing more pressure than at any point to restructure its business.
Chang said in his note that “CNSBG has long been one of the most profitable and margin-focused entities in Hon Hai.”
The move to tap into set-top boxes is in line with Hon Hai chairman Terry Gou’s (郭台銘) aim to diversify the firm’s product portfolio and maintain growth momentum following its purchases of a PC factory in Poland from Dell Inc in December 2009, a TV plant in Mexico from Sony Corp in September 2009, another Sony TV plant in Slovakia in April last year and the winning of Apple Inc’s iPhone and iPad orders.
“What these deals have in common, with the exception of iPad, is that Hon Hai will make much higher operating margin (likely at 4 percent) than corporate average business,” Chang wrote in the note.
Citigroup forecast Hon Hai’s operating margin will climb to more than 3 percent next year, allowing it to deliver earnings per share of between NT$12 and NT$13.
SEE CISCO ON PAGE 10
The New Taiwan dollar is on the verge of overtaking the yuan as Asia’s best carry-trade target given its lower risk of interest-rate and currency volatility. A strategy of borrowing the New Taiwan dollar to invest in higher-yielding alternatives has generated the second-highest return over the past month among Asian currencies behind the yuan, based on the Sharpe ratio that measures risk-adjusted relative returns. The New Taiwan dollar may soon replace its Chinese peer as the region’s favored carry trade tool, analysts say, citing Beijing’s efforts to support the yuan that can create wild swings in borrowing costs. In contrast,
Nvidia Corp’s demand for advanced packaging from Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) remains strong though the kind of technology it needs is changing, Nvidia CEO Jensen Huang (黃仁勳) said yesterday, after he was asked whether the company was cutting orders. Nvidia’s most advanced artificial intelligence (AI) chip, Blackwell, consists of multiple chips glued together using a complex chip-on-wafer-on-substrate (CoWoS) advanced packaging technology offered by TSMC, Nvidia’s main contract chipmaker. “As we move into Blackwell, we will use largely CoWoS-L. Of course, we’re still manufacturing Hopper, and Hopper will use CowoS-S. We will also transition the CoWoS-S capacity to CoWos-L,” Huang said
Nvidia Corp CEO Jensen Huang (黃仁勳) is expected to miss the inauguration of US president-elect Donald Trump on Monday, bucking a trend among high-profile US technology leaders. Huang is visiting East Asia this week, as he typically does around the time of the Lunar New Year, a person familiar with the situation said. He has never previously attended a US presidential inauguration, said the person, who asked not to be identified, because the plans have not been announced. That makes Nvidia an exception among the most valuable technology companies, most of which are sending cofounders or CEOs to the event. That includes
INDUSTRY LEADER: TSMC aims to continue outperforming the industry’s growth and makes 2025 another strong growth year, chairman and CEO C.C. Wei says Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), a major chip supplier to Nvidia Corp and Apple Inc, yesterday said it aims to grow revenue by about 25 percent this year, driven by robust demand for artificial intelligence (AI) chips. That means TSMC would continue to outpace the foundry industry’s 10 percent annual growth this year based on the chipmaker’s estimate. The chipmaker expects revenue from AI-related chips to double this year, extending a three-fold increase last year. The growth would quicken over the next five years at a compound annual growth rate of 45 percent, fueled by strong demand for the high-performance computing
RSS