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Asia300

Apple supplier Pegatron's profit falls 24% on Chinese labor costs

Yet strong demand for iPhone 7 and 8 brightens prospects for Taiwanese assembler

Customers handle iPhones at an Apple Store in Beijing. (Photo by Akira Kodaka)

TAIPEI -- Pegatron's net profit declined 24% in 2017 to 14.6 billion New Taiwan dollars ($500 million) amid high labor costs in mainland China and other setbacks, the Taiwanese electronics assembler said Thursday.

Delayed product launches and labor shortages during production peaks raised costs for the iPhone builder, CEO Liao Syh-jang said in an afternoon telephone conference. Liao also blamed a Chinese capacity expansion for a temporary drop in factory utilization.

Revenue for the year ended in December rose 3% to NT$1.19 trillion, supported by higher demand for game consoles and smartphones. The increased production capacity helped buoy sales. But operating profit tumbled 41% to NT$18.9 billion owing to the high labor costs as well as parts shortages that caused production delays.

Liao was more hopeful about the first half of 2018 amid renewed popularity for Apple's iPhone 8 and iPhone 7, which Pegatron assembles. The company's revenue for the January-February period rose about 20% on the year. The top-of-the-line iPhone X, assembled by Pegatron rival Hon Hai Precision Industry, has endured disappointing sales.

Lifting profitability will be key this year. The Taiwanese company's customers shoulder costs for some parts such as memory chips, so shortage-driven price increases have little effect on earnings, but for others, such as passive components, the burden falls on Pegatron.

Prior to the earnings announcement, Taiwan-listed Pegatron shares fell 0.65% Thursday to close at NT$76, while the benchmark Taiex index slid 0.18% to 11,018.45.

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