TAIPEI -- Hon Hai's (Foxconn) recent decision to raise wages will cut its margins and likely enhance the prospects of competitors, a Deutsche Bank analyst said Monday.

DB Hardware & Equipment analyst KC Kao estimated in a report that Foxconn's labor cost increases would reduce operating margins by 65 to 70 basis points over the next two years.

Foxconn had said it would raise base salary rates in China by some 16 to 25% this year, after succumbing to intense media scrutiny.

However, Kao noted, Foxconn has the lowest wages among the region's contract assemblers, which opens the door to EMS competitors, including Flextronics, Jabil, Celestica, Cal-Comp, and a host of Taiwanese ODMs.