Hon Hai Partners with Mozilla on Smart Devices

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Mozilla has recently partnered with Taiwanese-based Hon Hai (NASDAQOTC: HNHAF), better known as Foxconn, to manufacture mobile devices using Mozilla's Firefox operating system. Firefox OS, an open-source Web mobile operating system, aims to provide mobile users, hardware manufacturers and developers an alternative to other platforms in the mobile market.

At Foxconn's 2013 Computex press conference in Taipei, Taiwan, the company unveiled two tablet computers and three smartphone devices integrated with Firefox OS. According to Mozilla's CEO Gary Kovacs, Firefox OS-powered devices will first launch in emerging markets such as Brazil, Mexico, Poland, Spain, Columbia and Hungary this summer.

Mozilla has also partnered with handset makers Sony, LG Electronics, Huawei, ZTE and Alcatel to build the Firefox OS ecosystem. Eighteen telecom service operators from developed and emerging markets will distribute Firefox OS devices, including China Unicom, SingTel, Deutsche Telekom, Sprint and Telefónica. The company's diverse network of strategic alliances will help expands its global presence and sales. Firefox OS handsets may dent the growth of Google's (NASDAQ: GOOG) Android community and Apple's (NASDAQ: AAPL) iOS devices, specifically in emerging markets.

Hon Hai Earnings

Hon Hai, the world's largest contract manufacturer for electronics, became the sixth original equipment manufacturer (OEM) to join Mozilla. The company is recognized for the assembly of Apple products. According to Thomson Reuters, Hon Hai derives 60% to 70% of its revenues assembling iPad and iPhone devices. Other contract manufacturing customers include Hewlett-Packard, Sony and Nokia, but none of them match Apple's volumes. Apple has sold over 600 million iOS devices to date.

In the first quarter, Hon Hai posted a net profit of NT$16.35 billion (US $547 million), down from NT$36.97 billion (US $1.2 billion) because of a 19% drop in revenues. Revenues came in at NT$809 billion (US $27 billion), down from NT$1.13 trillion (US$37 billion). The company stated that the contraction in the PC market (discussed here) and weaker orders of iPhone and iPad devices were the main reasons for the lower revenue figures during the quarter.

Take a look at Hon Hai's quarterly earnings performance for the past year:

<img alt="" src="http://g.fool.com/editorial/images/50809/chart-hon-hai_large.png" />

Source: The Wall Street Journal

Hon Hai looks to add new contract manufacturing customers to its current portfolio for new revenue streams and protection if one or more of its customers report eroding sales. At the time of this writing, Hon Hai's market capitalization sits at NT$859.28 billion and trades at $72.60 per share, down 17% year-to-date, compared to the 3.1% rise of the Taiwanese Stock Exchange.

Firefox OS Competition

Google's Android OS and Apple's iOS dominate the worldwide mobile market. During the January-March quarter, Android and iOS combined for 92.3% market share for smartphones and a 96.1% share for tablet computers.

Android saw a 247.5% year-over-year growth in tablet computer shipments. Android shipped 27.8 million units and earned 56.5% market share. Apple's iOS accounted for 39.6% market share with 19.5 million units shipped, down from 58.1% share a year ago.

In the smartphone market, Android triumphed over Apple with 75% market share. Android shipments increased by 79.5% year-over-year to 162.1 million units. Apple iOS shipments came in at 37.4% with 17.3% market share. Despite Google's dominance in market share, Apple beats Android in app download revenue and mobile web share.

At Apple's 2013 Worldwide Developer Conference (WWDC), Apple CEO Tim Cook reported that his company dominated with 74% of mobile app revenue. Android collected 20%. In mobile web share, iOS earned 60% web share, while Android held 24% share. Cook noted that Android's fragmentation is confusing and not attractive to developers and potential customers.

<img alt="" src="http://g.fool.com/editorial/images/50809/fragmentation-source-tech-crunch_large.jpg" />

Source: Tech Crunch

“Over 93% of [Apple] users are on the latest version of iOS [iOS 6]. This is a stark difference from the world of Android,” Cook said on stage at WWDC. “More than a third of Android users are using an OS that was released in 2010.” Apple debuted its redesigned iOS 7 with new features that rival competing platforms. Users will be able to install the new system on their iPhone and iPad this coming fall.

Mozilla's Goal

According to Gong Li, Senior Vice President of Mobile Devices for Mozilla, Mozilla is set to capture a 10% share of the global smartphone market with its Firefox OS in the initial stages. Mozilla plans to achieve this by targeting emerging markets with $50 entry-level devices.

Firefox OS adds pressure on BlackBerry's BlackBerry 10 OS and Microsoft's Windows Phone OS. Both have struggled to gain traction in the lower-cost segment of the smartphone market against Android-based devices from Samsung and Chinese manufacturers Lenovo, Huawei and ZTE.

Mozilla's array of diverse handset and telecom carrier partnerships provides the company the essentials to build brand recognition and establish growth in various developing markets. Firefox OS presents Hon Hai with a lucrative opportunity to diversify its customer base and reduce its dependence on other companies, such as Apple, for growth.

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