Hon Hai Q3 net income surged 34%

PROMISING: The company expects demand to continue growing for its cloud and networking products, smart consumer electronics and computing products

• By Meryl Kao / Staff reporter

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Hon Hai Precision Industry Co (鴻海精密) yesterday reported record net profit in the third quarter, growing 34 percent year-on-year to NT$77.52 billion (US$2.36 billion), driven mainly by continued demand for artificial intelligence (AI) servers by major US cloud service providers.

“Even after the US midterm elections, we have not seen any slowdown in major cloud service providers’ [CSPs] spending plans, and we believe the short-term impact remains limited,” Hon Hai chairman Young Liu (劉揚偉) told an earnings conference in Taipei.

“However, we will continue to monitor whether there could be any longer-term impact,” he added.

From left, Hon Hai Precision Industry Co chief financial officer David Huang, chairman Young Liu and spokesman James Wu attend the company’s earnings conference in Taipei yesterday.

Photo: Fang Wei-chieh, Taipei Times

Earnings per share rose to a record NT$5.51 from NT$4.15 a year earlier, beating analysts’ average estimate of NT$4.92.

Gross margin fell to 6.02 percent from 6.35 percent due to its product mix and higher key component costs, while operating margin rose to 3.83 percent from 3.43 percent on economies of scale and a lower expense ratio, Hon Hai chief financial officer David Huang (黃德財) said.

Full-year operating margin is expected to exceed last year’s 3.2 percent, he said.

Hon Hai is Apple Inc’s primary iPhone assembler and makes servers powered by Nvidia Corp’s AI accelerators.

The company expects AI server rack shipments to grow by a high double-digit percentage sequentially this quarter, with AI server revenue also rising quarter-on-quarter, Hon Hai spokesman James Wu (巫俊毅) said.

It further expects AI server rack shipments to grow by a high double-digit percentage next year from this year, Liu said.

The company has not seen any significant manufacturing challenges from the transition between old and new generations of server racks for its major US customer, as automation and vertical integration continue to improve production efficiency, he said.

Hon Hai has also been working with major CSPs on various application-specific integrated circuit (ASIC)-based AI servers, with shipments of ASIC-based models rising 150 percent year-on-year last quarter, he said.

Many of Hon Hai’s ASIC-based projects use a consignment model, under which chip costs are excluded from revenue, meaning their share of revenue could be lower than their share of shipments, he added.

This quarter, Hon Hai expects significant sequential growth in its cloud and networking products business, driven by the continued ramp-up of next-generation AI server racks, Liu said.

Revenue from smart consumer electronics is expected to grow robustly this quarter on peak-season smartphone demand and higher selling prices, while computing product revenue is expected to decline slightly due to memory supply constraints, he said.

Revenue from components and other products is also expected to grow significantly, he added.

Last quarter, cloud and networking products accounted for 54 percent of Hon Hai’s NT$3.02 trillion revenue, followed by smartphones at 29 percent, computing products at 12 percent and others at 5 percent, the company said.

Overall, Hon Hai remains optimistic about its performance this year and expects revenue to grow by a double-digit percentage next year, Liu said.

Capital expenditure totaled NT$161.72 billion in the first nine months, up 43 percent year-on-year, mainly for AI server capacity expansion across Hon Hai’s global manufacturing footprint, Huang said.