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iPhone 6 assembler outperforms in first quarter

TAIPEI -- Foxconn Technology Group, a key assembler for Apple Inc., beat first-quarter market expectations with its improved manufacturing technology for the popular iPhone 6 and iPhone 6 Plus -- and held its ground against competitor Pegatron at a time when the U.S. company is moving to diversify suppliers.

     The main iPhone assembler on Friday reported net profit of 30.39 billion New Taiwan dollars ($997.24 million) on revenue of NT$1 trillion during the first quarter, up 56% and 15% from a year earlier. Revenue reached a historic high for the first quarter, and earnings per share of NT$2.05 surpassed the market consensus of NT$1.92.

     Before Foxconn announced the results, its shares shed 1.38% to close at NT$92.6 on Friday. Later in the day, the Foxconn board approved a substantial quarterly cash dividend of NT$3.8, paying out a total of NT$56.22 billion.

     Foxconn's gross margin of 7.1% and operating margin of 3.8% improved from a year earlier, and trumped key competitor Pegatron's 6.2% and 3.2% -- although the latter's revenue and net profit enjoyed stronger gains.

     Pegatron posted a net profit of NT$6.3 billion on sales of NT$274.2 billion for the quarter ended in March, jumping 25% and 132% on the year respectively.

     Vincent Chen, an analyst at Yuanta Investment Consulting, said Foxconn's improved margins came from improved yield and reduced labor costs during a quarter marked by softening demand. He cautioned that the current quarter will see a sequential slide.

     "We do not see much upside either because sales of May and June can be weak owing to low season of iPhone shipment," said Chen.

     Arthur Liao, an analyst at Fubon Securities, said that while he does not expect Foxconn's revenue to grow significantly this year, the Taiwanese company may still be able to push earnings per share to NT$9 from a high of NT$8.85 in 2014 if it can control operating expenses. 

     Apple has been splitting its iPhone orders between Foxconn and Pegatron to diversify its supply chain, but Foxconn remains the major assembler. Up to 50% of its revenue still comes from the U.S. company.

     To bolster ties with Apple, Foxconn has been working on an iPhone trade-in program in China. However, Liao said the scheme will not boost the Taiwanese group's top line much given the limited volumes involved.

     Over the past year, the electronics maker has been actively exploring other lines of business, including telecommunications and robotics. Foxconn acquired a stake in Taiwanese mobile carrier Asia Pacific Telecom, and it has worked with Japan's SoftBank to release a robot for home use.

     Foxconn has also collaborated with a number of tech companies to increase its presence in China. It is collaborating with Alibaba there to branch out into e-commerce and cloud markets, and with Tencent and China Harmony Auto to develop smart cars.

     Foxconn subsidiary Syntrend meanwhile officially opened a new mall in downtown Taipei on Friday. The hope is to replicate Tokyo's Akihabara district, which retails electronic goods and gadgets, and attract 500,000 visitors each month. 

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