Hon Hai Precision Industry earned record annual profits last year and expanded its margins, despite production challenges with Apple's newest iPhone and worries that it has not lived up to sales expectations. The world's largest contract electronics manufacturer by revenues, beat expectations with a fourth-quarter operating margin of 3.67 per cent, the widest in three years. 2012 net profit rose 16 per cent to T$94.8bn ($3.2bn). The rise of Hon Hai, known by its trade name Foxconn, shows how important Apple remains to the electronics manufacturing industry even as concerns persist about rising competition from groups such as Google and Samsung Electronics. The iPhone accounted for up to 30 per cent of its sales in the fourth quarter - a historic peak, said Jenny Lai of HSBC. That came even as a shortage of some parts initially led to a slow ramp-up in production and then reported cuts in the orders caused temporary hiring freezes at Foxconn plants handling iPhone production. Cost control and efficiency improvements as the company swung into full production of the phone at the end of the year helped its profitability, she said. The company's increased use of automation and its move from high-cost factories in southern Shenzhen to inland factories in cities such as Zhengzhou have also helped it save costs. Fourth-quarter net sales hit T$1.14tn, up nearly 6 per cent year on year. For the year, revenues were up 13.1 per cent to T$3.9tn ($130.7bn). A major concern now, however, is how much Foxconn's sales dip in the first half of this year. While Hon Hai's size and experience make it likely to be tapped for the bulk of Apple's manufacturing, Apple's sales are expected to slow unless it launches new iPhones, including potentially a lower-cost one, toward the end of the year. Falling sales of personal computers are expected to take a further bite as Hon Hai also works for major PC companies including Hewlett-Packard and Dell. In a statement distributed the day after it posted its full-year earnings, the Taipei-based company said it would continue its strategy of vertical integration - doing not just final assembly but also producing components - to gain more market share. Hon Hai already has stakes in many of the companies making the smaller parts that go inside the devices it assembles.