HONG KONG - Foxconn International, the HK-listed arm of the Taiwan-based electronics giant Hon Hai Precision Industry, said here on Tuesday that it has started talks with overseas clients over a possible product price rise, which could partly offset rising operating cost following two salary hikes in the Chinese mainland.
Foxconn International Chairman and CEO, Samuel Chin Wai Leung, told reporters after an annual shareholders' meeting that the two salary hikes were expected to have a short-term impact on the company's profits though Foxconn was currently unable to evaluate the real impact in quantity.
Chin said clients knew well Foxconn's manufacturing activities on the Chinese mainland and he believed all parties involved could reach consensus on new acceptable pricing. He expected a negotiation outcome in the third quarter this year.
Foxconn, the world's top contract cellphone manufacturer, makes computers, game consoles and mobile phones for companies including Apple, Hewlett-Packard, Sony and Nokia.
Chin also said there were full of uncertainties in the international market given the European debt crisis and concerns over the exchange rates of such main currencies as the Euro, which tumbled against the greenback in the past few weeks.
He said Hon Hai had paid extremely high attention to recent accidents regarding Foxconn's employees in the southern Chinese booming city of Shenzhen.
Also on Tuesday, trading in shares of Foxconn International resumed in Hong Kong after a sudden trading suspension on Monday.
Foxconn International, the only constituent stock of the benchmark Hang Seng Index from China's Taiwan, finished at HK$5.48 (70 US cents), down 3.18 percent from the closing price before Monday's suspension.
Its shares opened at HK$5.5 in the day and fell as much as 8.66 percent in the morning session before a rebound.
On Monday morning, trading in the shares of Foxconn International was halted in Hong Kong just two minutes after the opening for the release of salary hike. Its shares tumbled 5.5 percent to HK$5.66 from the previous closing.
Salary hikes
In a statement filed to the Hong Kong stock exchange on Monday, Foxconn said it had approved a proposal "to further increase the level of salaries and wages payable by the Company to its staff engaged on its production lines in the Shenzhen area".
The base salaries and wages of workers, leaders and supervisors in Foxconn's Shenzhen factory would be further adjusted from 1,200 yuan ($176) to 2,000 yuan per month subject to completion of a three-month work performance assessment by Foxconn, said the statement.
For employees in other parts of the Chinese mainland, Foxconn will review whether any further adjustment is to be made to the wages and salaries of those employees based on local living standards and relevant regulatory requirements, it added.
The salary hike would take effect on October 1 this year.
It was the second time in one week that Foxconn announced salary hike. Last Wednesday, it announced a 30-percent pay increase for workers at its Shenzhen plants starting from June 1 for what it claimed were "rising consumer prices and living costs and its corporate performance."
The pay rises came after 10 workers killed themselves and three attempted suicides at Shenzhen base this year.
Foxconn has some 420,000 employees in the Chinese mainland, with 300,000 in Shenzhen's plant alone.
Financial fallout
Foxconn International also said in late Monday's statement that it was unable to determine the impact of the latest salary hike on its financial results in 2010 "because the increase in the operating costs of the Company as a result of the wage and salary increase is just one of the factors that may have an impact on the Company's operating results".
"There are other factors which may help mitigate or offset such increase in operating costs, such as increase in revenue or reduction in other operating costs," said Foxconn International.
Also, the criteria for carrying out the work performance assessment referred to above are still to be decided by Foxconn International, according to the statement.
Though so, Hong Kong-based securities analysts and economists said the two salary hikes in just one week was set to increase its operating cost and to have an impact against its annual results, and of course, its share price.
Peter So, HK-based head of research at China Construction Bank (CCB) International, said hiking salaries and wages twice in one week fell out of market expectations and such a move was certainly to increase Foxconn's operating cost.
So said that CCB International has not yet assessed how much the salary hikes would increase Foxconn's operating cost, but it would probably cut the company's profit projections in 2010.
He said Foxconn could face much more pressure in profits next year than in 2010 after both the two salary hikes were implemented.
According to So, share prices of Foxconn International were likely to continue falling in Hong Kong, not only because of the salary hikes, but also the uncertain overseas economic prospects in the wake of the European debt crisis, which cast a shadow on Foxconn's exports.
So also pointed out the beneficial side of the salary hikes. " With higher salaries, Foxconn might be able to increase its production capability and efficiency, which is likely to offset the impact of salary hikes," he told Xinhua.
Macquarie Group, an international financial company, said in a note that Foxconn took the market by surprise with two salaries hikes in one week, which is expected to significantly impact Foxconn's profits this year.
Macquarie again put Foxconn International's rating at "underperform" and cut its target price from HK$5.3 to HK$4.6.
French BNP Paribas Securities Asia also slashed the target price of Foxconn International's shares from HK$7.5 to HK$6.
BNP Paribas also lowered Foxconn's projection of gross profit margin from 10.7 percent to 7.1 percent, and it forecast Foxconn's total revenue this year to stand at $8.12 billion.>
