Hon Hai Precision Industry Co (鴻海精密) yesterday cut its full-year revenue growth forecast to a mild decline annually, dragged by sluggish demand for regular servers, networking products and computers.
The reduced forecast means that Hon Hai’s annual revenue would dip for the first time since 2016. The company in March told investors that it would strive to hold its revenue steady this year, compared with last year’s NT$6.63 trillion (US$207.7 billion). Hon Hai assembles a wide range of electronics from iPhones, PCs to servers.
“Based on the latest market conditions, we adjusted our full-year forecast for 2023 from an earlier prediction of flattish to a slight decline,” Hon Hai chairman Young Liu (劉揚偉) told a virtual investors’ conference. “There are currently a great deal of uncertainties including tight monetary policies, geopolitical tensions and inflation.”
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Hon Hai expects its computer business to drop year-on-year this year, reversing its previous estimate of significant growth.
Liu said that the PC industry’s weakness is to carry into the second half of this year.
Hon Hai said it saw robust demand for servers used in artificial intelligence (AI) applications from cloud service providers, but it would not be enough to offset sagging demand for regular servers.
As a result, it expects a moderate correction in its cloud and networking business this year, a downward adjustment from its earlier estimate that it would be flattish.
Servers for AI applications are expected to account for 20 to 30 percent of the company’s total server revenue, higher than the 20 percent last year.
AI-focused servers — including those capable of generative AI functionality, such as training and inferencing — offer higher margins than regular servers, the company said.
Hon Hai said it supplies more than 70 percent of the market for graphics processing unit (GPU) modules used in servers for generative AI applications, and has a high market share of GPU baseboards for those servers, while holding a relatively lower market share of AI server assembly.
Hon Hai supplies servers to Microsoft Corp, Google’s parent company Alphabet Inc and Amazon.com.
The company stuck to its projections of a mild reduction in its smartphone business and significant growth for its component business on an annual basis.
It continues to see challenges ahead to maintain its gross margin at a similar level of last year’s about 6 percent, given heavy depreciation and amortization costs for new equipment and increasing outlays for overseas expansions, it said.
Gross margin improved to 6.41 percent last quarter from 6.04 percent in the first quarter and 6.4 percent in the same period last year, beating company expectations, it said.
Hon Hai said it is planning to invest more in India to produce key components used in consumer electronics, potentially adding categories such as semiconductors and electric vehicles to its shortlist.
For the current quarter, Hon Hai expects revenue to increase quarter-on-quarter from NT$1.3 trillion last quarter.
However, it expects revenue to fall on an annual basis from NT$1.75 trillion.
‘“Overall, the boom driven by the COVID-19 pandemic two years ago has peaked. Market demand is returning to normal levels,” Liu said. “The company’s business will grow gradually during the second half as the industry enters its peak season, but we will be on the lookout for a market recovery.”
The company said that net profit dropped 1 percent year-on-year to NT$33 billion last quarter, from NT$33.29 billion.
On a quarterly basis, net profit soared 157 percent from NT$12.83 billion, due to significant growth in nonoperating gains.
Earnings per share rose to NT$2.38 from NT$0.93 in the first quarter, but declined from NT$2.4 in the second quarter last year.
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