Barclays Capital cuts iPad shipment forecast for Hon Hai


TAIPEI — Hon Hai Precision Industry Co., the world’s largest contract electronics maker, will ship fewer iPad tablets in the fourth quarter because of demand concerns, Barclays Capital predicted Monday.

“From the assembly perspective, we believe the fourth-quarter iPhone shipments still remain in the 34 million to 35 million units range, in line with our previous forecast,” Kirk Yang, head of Asia ex Japan tech hardware research based at Barclays Bank, Hong Kong, wrote in a research note.

“However, for iPad, we believe 4 million units were shifted from the fourth quarter of 2011 to January 2012, due to concerns on the global economy and potential demand weakness,” he said.

The bank expects Hon Hai’s iPad shipments to reach 14 million units in the fourth quarter, down from its previous forecast of between 18 million and 19 million units.

But Yang did not expect that the flooding in Thailand would lead to component shortages for the iPhone and iPad or affect shipments.

A day earlier, Hon Hai reported a gross margin of 7.05 percent in the July-September period, down from 7.28 percent in the second quarter.

The company’s operating margin rose to 2.2 percent in the quarter, up from 2.01 percent a quarter earlier, while net margin improved to 2.22 percent, up from 1.65 percent.

Barclays Capital said Hon Hai’s Q4 consolidated operating margin should further improve to 2.5 percent from 2.2 percent in the third quarter, and to 2.9 percent for the whole of 2012, thanks to increasing utilization of inland plants in China.

The bank estimates that 60 percent of Hon Hai’s iPad 2 production will be located in Chengdu in western China in the fourth quarter, up from 30 percent in the first half of 2011 and 50 percent in Q3.

Meanwhile, Hon Hai is expected to assemble 40 percent of its iPhone production in Zhengzhou in the fourth quarter, up from 20 percent in the first half of this year and 30 percent in the previous quarter, the bank said.

“We expect lower labor rates, various incentives, and favorable manufacturing costs in inland cities and better pricing from Apple to also help margins going forward,” Yang said.

The positive trends led Barclays Capital to maintain its “overweight” rating for Hon Hai shares and a target price of NT$100. It also expected the launch of the iPad 3 and iPhone 5 in 2012 to boost Hon Hai’s earnings momentum next year.

Shares of Hon Hai closed down 1.55 percent at NT$82.5 in Taipei trading.