Foxconn International's chairman seems to have forgotten that old adage: it is better to under-promise and over-deliver.
After declaring in May that the company expects a "dramatic improvement" in its 2011 results after it lost money in 2010, the mobile phone manufacturer has warned that it has continued to make a loss in the first half of this year.
The loss will be "significantly less" than the same period of 2010 -- an improvement, to be sure, and enough for shares to add 0.6 per cent to HK$3.64 ($0.47) in early trading, but not necessarily a dramatic one.
For the full-year 2010, Foxconn lost $68.3m, compared with a profit of $125.39m for 2009, with revenues also falling, according to Bloomberg data.
The company did not give a reason for this new profit warning but it has been struggling with higher labour costs. Factory wages in China are rising, and Foxconn in particular has faced greater pressure after a spate of worker suicides at its plants -- the most recent of which was earlier this week. Foxconn raised wages by 30 per cent in June last year, and again by more than 60 per cent last October.
Foxconn is famous for making Apple products, and with Apple sales beating expectations and looking to bigger growth in Asia, it may seem counter-intuitive that Foxconn is making a loss.
But, as FT Tilt reported earlier, analysts covering Hon Hai, the Foxconn unit which makes Apple products, said that because of Apple's involvement in procurement, which limits cost-cutting, and its short lead times, profitability for suppliers can be squeezed.
Foxconn is also dependent on other handset makers, which have not been doing as well. According to Reuters, it makes about 70 per cent of its revenue from Motorola and Nokia. The Finnish phone maker has been steadily losing marketshare in smartphones to Apple, HTC and Samsung.
Full coverage of Foxconn - FT Tilt`
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