Analyst: Foxconn's financial form lags peers

LONDON — The financial performance of electronic manufacturing services giant Foxconn International Holdings is lagging far behind that of rival companies, according to Chitra Gopal an analyst with Nomura Singapore Ltd.

Whereas such companies rivals saw a recovery in sales and margins in the first half of 2010, Foxconn is making losses that are set to widen year-on-year, the analyst said. The analyst expects FIH 1H10 sales to contract by 10.3 percent year-on-year while Jabil, Flextronic and Sanmina have expanded sales by 17.4, 8.1 and 30.1 percent, respectively. He ascribed this to the move in-house and away from outsourcing by key customer Nokia and Foxconn's lack of "significant" exposure to smartphone makers.

The analyst notes that Foxconn issued a profit warning on June 29 and relates it to problems with moving its manufacturing inland within mainland China. At the same time Foxconn has said it will raise wages for Chinese workers although this 10 to 20 percent average hike in labor costs is not expected to impact Foxconn until the third and fourth quarters of 2010.

"We read FIH’s underperformance as a reflection of company-specific issues. In an effort to lower costs, FIH has been trying to shift production inland, which looks to be taking time. In our view, this is a reflection of its over-sized asset base and the fact that such cost structure re-alignments will take time," said Gopal in a note to clients.

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