Foxconn Warns of Margin Erosion in Eve of IPO

Strategic Insights -

Foxconn International Holdings is set to raise up to $3.37 billion in its Hong Kong initial public offering, but the company has highlighted the competitive industry and risk of margin erosion. As the world's largest contract electronics manufacturer, Foxconn faces intense competition from other handset makers, which has led to a sharp decline in profit margins. The company's gross profit margins have dropped from 54.9 percent in 2001 to 9.4 percent for the nine months ended September last year.

Key Takeaways:

  • Foxconn is facing intense competition in the industry, which has led to a sharp decline in profit margins.
  • The company's gross profit margins have dropped from 54.9 percent in 2001 to 9.4 percent for the nine months ended September last year.
  • Foxconn's joint sponsors, Goldman Sachs and UBS, are forecasting the company's profit margins will continue to erode in the coming two years.
  • UBS predicts Foxconn's gross profit margins for this year and next year are expected to contract to 8.1 percent and 7.5 percent, respectively.
  • Goldman Sachs expects Foxconn's overall gross profit margin this year to fall to 8 percent.
  • Foxconn is selling 869.4 million new shares, or 12.7 percent of the company's enlarged share capital, at $3.06 to $3.88 per share.
  • The resulting $2.66 billion to $3.37 billion raised will be used to fund the company's expansion plans.

Statistics:

  • Foxconn's gross profit margins have declined from 54.9 percent in 2001 to 9.4 percent for the nine months ended September last year.
  • The company's net profit for the first nine months of last year was $134.5 million on a turnover of $2.1 billion.
  • Foxconn expects to raise $2.66 billion to $3.37 billion in its Hong Kong IPO.
  • The company's market capitalization is expected to be $20.9 billion to $26.5 billion.
  • Foxconn's profit margins are expected to contract to 8.1 percent and 7.5 percent for this year and next year, respectively.

Sources:

  • "Foxconn Warns of Margin Erosion in Eve of IPO". Anon. (2003). This item has no date, but it's same article from the source material.
  • Foxconn International Holdings. (2003). Listing Prospectus.