UPDATE 2-Foxconn sees dramatic improvement in 2011 results, shares jump

Wed May 18, 2011 11:25am BST

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* Says banking on smartphones, cost cuts

* Shares log biggest 1-day rise since December 2009 (Adds quotes, background)

By Lee Chyen Yee and Huang Yuntao

HONG KONG, May 18 (Reuters) - Foxconn International Holdings Ltd , the world's top contract cellphone maker, expects a "dramatic improvement" in its 2011 results, its chairman told shareholders, lifting its shares as much as 15 percent to its biggest daily gain in more than a year.

The money-losing company, whose parent Foxconn Technology Group helps assemble Apple Inc's iPhones and iPads, has been struggling under a host of problems, including rising costs and labour unrest that have led to staff suicides at its sprawling production facilities in China.

It is due to be removed from Hong Kong's benchmark Hang Seng Index on June 7.

During a shareholders' meeting on Wednesday, a small group of protesters chanted slogans and held up banners, including one that read "Bloody Apple", to highlight the fight for workers' rights at Foxconn, a unit of Taiwan electronics giant Hon Hai Precision Industry Co Ltd .

Foxconn International's shares, which had lost about 20 percent of their value since the start of the year, finished Wednesday up 11 percent . Intraday, the stock rose as much as 14.8 percent, the biggest one-day jump since December 2009.

Chairman Samuel Chin declined to elaborate on the results forecast. Analysts on average expect the company to post a net loss of $12 million for 2011, according to Thomson Reuters I/B/E/S.

"If you look at the first half, they should break even," said UBS analyst Arthur Hsieh in Taipei. "In the fourth quarter they will have a small profit."

"It's more because of the cost cuts. They have pretty much done a lot in terms of whatever they can scale down. They are relatively slim."

'DUMMY PHONES'

Foxconn International said it was banking on fast-growing smartphones and cost cuts, such as selling its Taiyuan operations to its parent, to improve its bottomline.

"Smartphones previously were a niche market. They have very much become mainstream products," Chin told a news conference after the shareholder meeting. "Today's smartphones will become tomorrow's dummy phones."

"With regard to smartphones, as I mentioned to you before, our R&D expenses have continued to increase and I can assure you that a tremendously high amount of that expense is focused primarily on smartphones/tablets," he said.

Foxconn International, whose customers include Nokia , Motorola Mobility Holdings Inc and Huawei Technologies Co Ltd , logged another loss for the second half of 2010 as the company struggled to regain its footing amid rising costs and falling prices.

About 70 percent of its revenue comes from Nokia and Motorola.

Shipments of smartphones, which allow users to surf the Internet, take pictures, and send email as well as make phone calls, are expected to grow to 97.2 million units this year, up from 55.8 million last year, industry figures showed.

But some analysts cautioned that the strong feature-phone focus of Foxconn International's client base could make it difficult for the company to perform well in the near future. (Editing by Chris Lewis and Muralikumar Anantharaman)

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