FOXCONN International Holdings Ltd, the world's biggest contract maker of mobile phones, said it will report a "significant decline" in first-half profit because of increased operating costs and investments on production, Bloomberg News reported yesterday.

Higher tax expenses and spending on research and development will also contribute to the profit drop, Foxconn said in a statement to the Hong Kong stock exchange on Friday. Shenzhen-based Foxconn is set to report first-half earnings on August 27.

Foxconn, the second-worst performer on Hong Kong's Hang Seng Index in 2008, faces increased competition and higher production costs that may damp profitability this year, Chairman Samuel Chin said in June. The company, a supplier to Nokia Oyj and Motorola Inc, will raise engineering spending by 50 percent and boost output in Langfang and Taiyuan in northern China, he said.

Foxconn, controlled by Hon Hai Precision Industry Co, reported profit rose 7.4 percent to US$324 million in the first half of last year.

Foxconn fell 9.4 percent to HK$7.69 (98 US cents) in Hong Kong trading on Friday before the announcement, widening its loss for the year to 56 percent.

Aluminum Corp of China Ltd is the worst performer on the Hang Seng this year with a 59-percent decline.