Foxconn sizzles on Apple patronage

Foxconn Technology Group, the contract manufacturer to some of the world’s leading OEMs, will account for 50 percent of total EMS sales by 2011 as demand for its services surge from companies like Apple Inc., according to a research firm.

With demand for Apple’s iPhone 4, iPad and Macintosh computers soaring, Foxconn, which is also known as Hon Hai, will continue to grow strongly and its sales expansion could easily surpass even the giddy growth some OEMs have posted in recent quarters. The continued hike in demand for its services could add to the gulf already separating Foxconn from its closest rivals, according to research firm iSuppli Corp.

“Foxconn’s customers are some of the hottest companies in the electronics business today, most notably Apple Inc.,” said Thomas Dinges, an analyst at iSuppli. “As Apple and others have gained share, so has Foxconn.”

Foxconn’s competitors are not even within striking distance of either its current annual sales or its growth rate. In the first quarter of this year for instance, Foxconn’s sales rose 54 percent from the prior year to $17.2 billion while Flextronics International Ltd., once the world’s biggest EMS provider, recorded a piddling 6.4 percent sales increase to $5.9 billion for the same quarter.

“Part of Foxconn’s revenue boom is due to the industry wide strength of the digital consumer business and a strong recovery in computing-related products,” iSuppli said in a report. “Moreover, the company dramatically outperformed the 27.5 percent year-over-year revenue increase for the Top 10 EMS providers in the first quarter, reflecting the strength of its customer base.”

It has not been all good news for Foxconn, however. With its fortunes so closely tied to Apple’s, gross profit margin pressures at its computer and consumer electronics customer has similarly hit Foxconn, reducing its overall profitability. The company had also been engulfed recently in controversies over the suicide of some of its workers in China and raised salaries sharply in the region partly to deflect criticisms of its business practices.

iSuppli noted that Foxconn’s gross profit margin fell in the first quarter to 8.7 percent from 9.5 percent in the comparable quarter of 2009. “Margins are a key area for Hon Hai as the company is working to implement higher wage rates in its large facilities in China, while shifting production over the next several quarters to lower-cost regions in that country,” Dinges said.