FIH Mobile's fortunes tied to Xiaomi

Xiaomi, which aims to sell 300 million smartphones next year, up from 70 million this year, is a growth driver for FIH. Photo: Bloomberg



FIH Mobile, which makes half the smartphones sold by Xiaomi, may soon cap its two-year turnaround effort with up to 100 per cent increase in net profit, thanks to its top mainland client's strong shipment growth.

That has made FIH, the world's biggest contract manufacturer of mobile phones, "a good proxy for the strength" of Beijing-based Xiaomi, Daiwa Capital Markets analyst Kylie Huang told the South China Morning Post.

Xiaomi, which investment banking sources expect to launch a US$1.5 billion Hong Kong share offering early next year, is estimated by Daiwa to account for 30 to 35 per cent of FIH earnings this year and 40 to 50 per cent next year.

Daiwa pointed out that FIH also supplied 70 per cent of metal casings used by Xiaomi.

A former Hong Kong blue chip, FIH said in a regulatory filing last week that its net profit this year is expected to surge 80 to 100 per cent from its US$77.28 million profit last year.

FIH chairman Tong Wen-hsin said in the filing that the company's likely strong earnings growth was attributed to an improved gross profit margin of more than 6 per cent during this year, compared with last year's 4.48 per cent margin.

That was driven by increased operating efficiency, solid control of operating expenses, and better allocation of research and development resources at FIH, part of the Foxconn group of companies under Taiwan's Hon Hai Precision Industry.

FIH had suffered losses in two of the past three years and endured a series of cost-cutting measures as its once-largest customers, Nokia and Motorola, struggled to compete against Apple and Samsung Electronics.