Hon Hai's Apple pie under threat from Pegatron

Apple posted its first quarterly profit decline in more than a decade in the March quarter, and forecast revenue of $33.5 billion to $35.5 billion this quarter, compared with $43.6 billion in the previous quarter.

Despite rising profit, Hon Hai recorded a revenue slide of 19.2 percent in the January-March period.

Pegatron's revenue grew 29 percent in the same period from a year ago, while its net profit surged 81 percent to T$2.31 billion ($78.59 million).

Pegatron currently makes older models for Apple, including the iPhone 4S and iPhone 4, It also manufactures the iPad mini.

"Hon Hai would see a flat revenue this year at best... while Pegatron has great growth potentials because it is going from nothing to something," said HSBC analyst Jenny Lai. "But Hon Hai's margins would improve, benefitting from getting more component orders.

Foxconn Technology Group, Hon Hai's holding company, has been trying to turn itself into a high-margin purveyor of sophisticated components to escape from the ever decreasing margins in its traditional business.

"I think it'd be a misconception to label Foxconn as just an assembly line manufacturer," group spokesman Louis Woo told Reuters late last year in an interview. "From glass to cable connectors, we're playing a critical part in components."

In the fourth quarter, Hon Hai's operating margin climbed 3 basis points to 3.7 percent, compared with the previous three months, while Pegatron's operating margin improved by 2 basis points to 0.3 percent. In the March quarter, Pegatron's operating margin increased by 5 basis points to 0.8 percent.

"Pegatron's margins are still a lot lower than Hon Hai's. This is because Pegatron's offering very competitive pricing and that's how it wins orders," said Lai.

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