Foxconn's Hon Hai reports Q1 revenue drop, likely on weak iPhone 5 demand

Hon Hai's first quarter profit was up 8.4 percent year-over-year

Foxconn's Hon Hai Precision Industry posted a 19.2 percent year-over-year decline in revenue for the first quarter, with sales likely affected by weak demand for Apple's iPhone 5, according to an analyst.

The Taiwanese contract manufacturer said on Wednesday its revenue for the quarter was NT$809 billion (US$27 billion), although net profit was up 8.4 percent year-over-year, reaching NT$16.4 billion.

Hon Hai Precision Industry is the main manufacturing arm of Foxconn Technology Group, which is best known as a supplier to U.S. tech giant Apple. The partnership between the two companies has helped fuel Foxconn's rapid growth in recent years, especially in China where it has over 1.2 million employees.

But in this year's first quarter, sales of Apple's iPhone 5 have been in decline, which was the main reason for the drop in Hon Hai's revenue, said Arthur Liao, an analyst with Fubon Securities Investment Services Co. In addition, consumers are buying up Apple's lower-cost iPad mini over the more profitable iPad, he said.

"I also believe (Hon Hai's) second quarter will be worse than the first quarter," Liao said. The popularity of Apple's latest iPhone model is waning, and consumer demand will shift to competing smartphones from Samsung, HTC and Nokia in the second quarter, he added.

Analysts estimate that Apple's business accounts for 40 to 50 percent of Foxconn's revenue. But the Taiwanese company is losing some of Apple's product orders to rival supplier Pegatron, which is offering aggressive pricing on manufacturing.

Apple is preparing to launch a lower-priced iPhone model in third quarter, according to Liao and his sources. But production of the device will solely go to Pegatron and not Hon Hai, he added. The budget iPhone will be priced between $300 and $350 without carrier subsidies, and feature a plastic casing.

"It will have cheaper components, but it won't be a cheap phone," he added.

Apple could not be immediately reached for comment. But rumors of a budget iPhone have long circulated through the tech press. Earlier this year, however, Apple marketing chief Phil Schiller reportedly dismissed the idea that the company was working on a cheaper iPhone to grab market share.

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