Shares of Chinese electronics manufacturing giant Foxconn plunged 16% on Friday after the company’s parent Hon Hai Precision Industry reported lower profits thanks to higher labour costs.
This is not surprising: As Nomura recently pointed out, despite the slowdown in the Chinese economy, the shortage of labour (and therefore wage inflation) is a problem that’s actually worsening.
Foxconn, of course, is the infamous manufacturer of all of Apple’s huge hit, which prompted us to look at how its stock has done against Apple over the years.
Here’s a 5-year look via Bloomberg.
Green = Apple
Orange = Foxconn
Who knew that building iPhones and iPads was such a bad business?
UPDATE: This chart from Nomura helps clarify the problem at Foxconn/Hon Hai.
The red bar is year-over-year profit growth for the year. The grey bar is earnings growth.
Basically, despite big top-line growth, you haven’t had earnings growth since 2007. 2008 and 2009 cancel each other out, and then despite huge revenue gains in 2010 and 2011, there’s been no earnings growth.
Nomura projects nice revenue and earnings growth over the next two years (because Foxconn will continue moving inland in a search for lower wages and higher margins) but that’s obviously pure speculation and right now the market isn’t buying it at all.
One other interesting note: According to Nomura, 50% of the company’s revenue will be Apple compared to just over 30% in 2011.