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Foxconn Q2 earnings hit by Nokia and Snapdeal losses

Taiwanese company expects boost from OLED iPhones in second half

TAIPEI -- Key iPhone assembler Hon Hai Precision Industry, commonly known as Foxconn Technology Group, on Friday reported lackluster results for the second quarter as a subsidiary incurred substantial losses from investments in Nokia's feature phone business and India e-commerce startup Snapdeal.

Net income came in at 17.87 billion New Taiwan dollars ($588 million), or NT$1.02 per share, on revenue of NT$922.41 billion. The market consensus was for profit of NT$1.25 per share on revenue of NT$913.79 billion, according to Thomson Reuters.

"Hon Hai's operating expenses rose significantly year over year in the past quarter, as its Hong Kong-listed subsidiary FIH Mobile suffered significant losses from Nokia and Snapdeal investments," said Vincent Chen, president of Taipei-based Yuanta Investment Consulting.

Operating expenses climbed 9.1% in the three months ended in June to NT$37.82 billion.

FIH Mobile reported a net loss of $196.55 million on revenue of $4.37 billion, up 89.6% year on year, for the first six months of this year.

The Hong Kong-listed company, which is responsible for making mobile handsets for Foxconn's non-Apple customers and the group's brands Nokia and Sharp, said in a statement that it lost about $162.5 million from its $200 million investment in Snapdeal. It did not reveal the exact amount of losses in the Nokia business.

Still, market watchers have been keen on Foxconn's performance in the second half of 2017 as it monopolizes orders for Apple's premium iPhone model sporting an organic light-emitting diode display.

Hon Hai shares have gained 39% this year to close at NT$116.50 on Friday before the earnings were released.

According to estimates by Yuanta, Foxconn will ship a total of 147 million iPhones this year, down slightly from 148 million in 2016. Meanwhile, Apple assemblers are expected to ship a total of 216 million iPhones in 2017, up from 201 million units last year.

Despite the slight dip in shipment numbers, Foxconn may benefit from an expected higher sales price for premium iPhones with OLED screens, compared with existing models sporting LCD screens.

Some market watchers suggest OLED iPhones could start at more than $1,000, compared with $769 for the iPhone 7 Plus with 32GB of memory.

Further, Foxconn splits orders for new 5.5-inch LCD iPhones with smaller Taiwanese rival Wistron, while 4.7-inch iPhones are handled exclusively by Taipei-based Pegatron.

In related news, President Tai Jeng-wu of Foxconn-controlled electronics company Sharp on Friday proposed that Japanese companies in the display industry, including materials and equipment suppliers and embattled government-controlled panel maker Japan Display, should consider forming an alliance to boost their competitiveness.

Tai further suggested that Sharp should be the leader of the alliance, without providing details on how he thinks the group should be formed.

In recent days Japan Display has indicated that it is open to accepting outside capital for its turnaround efforts.

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