Hon Hai September Revenue Up 38.4% YoY; U.S. Market Breadth Alarms as Saudi Cuts Asia Oil to Six-Year Low

Hon Hai September Revenue Rises 38.4% YoY, AI Server Demand Continues

Hon Hai Precision Industry Co., Ltd. said on Oct. 5 that its September revenue reached NT$1.16 trillion, up 38.4% year over year; third-quarter revenue was about NT$3.027 trillion, or about $95.5 billion, up 47% year over year, above the analysts' average estimate of NT$2.83 trillion. Revenue for the first nine months totaled NT$7.67 trillion, up 39.5% year over year. The company said it expects AI-related business to continue growing in the fourth quarter. ^[1]

As a server assembly partner for Nvidia, Hon Hai has continued to benefit over the past two years from a global wave of cloud computing infrastructure construction. According to Bloomberg Intelligence, supported by AI infrastructure demand, Hon Hai is expected to maintain 25% to 35% revenue and profit growth over the next several years. Hon Hai's shares have risen about 10% year to date. ^[1]

Hon Hai still derives a considerable share of revenue from its work with Apple and is a major contract manufacturer of the iPhone, with assembly plants in both China and India; Apple is diversifying suppliers, and several manufacturers, including Luxshare Precision, have been brought into its supply system. Gross margins in this contract manufacturing business are relatively low, in sharp contrast with the AI server business. ^[1]

U.S. Stocks: Index-Breadth Divergence, With Treasury Volatility as the Key Arbiter

Morgan Stanley chief equity strategist Mike Wilson noted that there is currently an approximately 12% divergence gap between U.S. equity market breadth and index prices, and there is only one ultimate arbiter: the U.S. Treasury market. Among Russell 3000 constituents, 51% have already fallen more than 20% from their June highs, formally entering bear-market territory; the median S&P 500 stock is 16% below its 52-week high, and market breadth has fallen to its lowest level since the dot-com bust. ^[2]

Wilson's conclusion is: if bond volatility cannot calm down, the S&P 500 may fall to roughly 6,800 to 7,300 over the next month, after which a year-end rally could emerge; if bond volatility cools first, catch-up gains in individual stocks will drive both the index and breadth higher. The 10-year Treasury yield has returned to 5.25%, the MOVE index, which measures Treasury volatility, has breached 100, while the VIX fear gauge remains below 15. ^[2]

Saudi Aramco Cuts Asia Selling Price to Six-Year Low

Saudi Aramco's November pricing for Arab Light crude for Asian buyers is $5 a barrel below the regional benchmark, a sharp widening from the $2 a barrel discount in October; in contrast to the steep cut for Asia, Saudi Aramco simultaneously raised November selling prices for European buyers by $3 a barrel, while pricing for U.S. buyers remained unchanged. According to a previous Bloomberg survey, the market had originally expected Saudi Arabia to raise Asian selling prices by about $5 a barrel. ^[3]

According to JPMorgan estimates, Middle East crude oil exports have recovered to 98% of pre-war levels. Saudi Arabia's crude oil shipments via the East-West Pipeline have recovered to more than 80% of capacity. Because risks along the Strait of Hormuz remain, many customers are choosing to bypass this route, forcing producers to transship cargoes via Hormuz to the Gulf of Oman for delivery, with operating costs rising accordingly. ^[3]

Emerging Markets: Sensitivity to External Shock Transmission Rises

James Lord, head of emerging-market FX strategy at Morgan Stanley, noted that oil prices, U.S. Treasury yields and the dollar now together explain about 55% to 60% of return variations in hard-currency and local-currency emerging-market fixed income, compared with only about 25% before the Iran conflict broke out. The bank's base case is that emerging markets are more likely to enter a low-return range than to see disorderly selling. ^[4]

Data show that over the past three months, local-currency emerging-market bond returns were only around the 45th percentile historically, while fund inflows were as high as the 90th percentile; on a calendar-year basis, this divergence is the largest since 2013. Since late June, U.S. Treasury yields have risen by nearly 90 basis points cumulatively, but emerging-market sovereign spreads have barely moved this year. ^[4]

Huawei and Qualcomm Reach Patent Licensing Agreement

On Oct. 5, Huawei announced that it had reached a multi-year, broad patent licensing agreement with Qualcomm; the two sides will cross-license patent portfolios across multiple technology areas including 5G, computing, artificial intelligence and networking, while Qualcomm will acquire some U.S. patents from Huawei in computing, AI, networking and other technology areas. The transaction will be completed after obtaining necessary regulatory approvals. The agreement explicitly follows fair, reasonable and non-discriminatory (FRAND) principles. The specific closing timetable and transaction amount were not disclosed. ^[5]

U.S.-Iran Tensions Enter Critical Week as Brent Remains Elevated

According to Xinhua, on Oct. 4 Iranian Foreign Minister Araghchi said that although Iran remains willing to seek a just and dignified solution through diplomatic channels, if the enemy again resorts to military action, Iran will respond more devastatingly than before. Trump told reporters outside the White House last weekend that he would make a decision on Iran, but did not disclose a specific timetable. ^[6]

Bank of America noted that the current Brent price of about $103 falls exactly between the two scenarios of sporadic conflict and intensive engagement. According to The Wall Street Journal, the Theodore Roosevelt Carrier Strike Group and the Makin Island Amphibious Ready Group have set off; the two formations together carry more than 7,000 sailors and about 2,000 Marines and are expected to arrive in the Middle East around late October. ^[6]