Foxconn signals cuts amid iPhone downfall

By BLOOMBERG

TAIPEI • Foxconn Technology Group, the biggest assembler of iPhones, became the latest Apple Inc supplier to warn of anaemic demand, with an internal memo suggesting that expenses will be cut by almost a half next year.

The contract manufacturer aims to cut 20 billion yuan (RM12.18 billion) from expenses in 2019 as it faces “a very difficult and competitive year”, according to an internal document obtained by Bloomberg.

The company’s spending in the past 12 months is about NT$206 billion (RM28.14 billion). The shares of Hon Hai Precision Industry Co Ltd, as Foxconn is known in Taiwan and Asia, rose less than 1% in early trade in Taipei yesterday.

“The review being carried out by our team this year is no different than similar exercises carried out in past years,” Foxconn said in an emailed statement in response to Bloomberg queries. It’s designed to ensure the company’s teams and budgets “are aligned with the current and anticipated needs of our customers, our global operations and the market and economic challenges of the next year or two.”

Foxconn’s iPhone business will need to reduce expenses by six billion yuan next year and the company plans to eliminate about 10% of non-technical staff, according to the memo. The moves are likely to add to the gloom enveloping Apple and suppliers for the iPhone, its most important product. Just last week, four suppliers on three continents cut their revenue estimates because of weak demand. That set off a rout in technology stocks that has spread to the broader market in recent days.

Goldman Sachs cut its price target for Apple for the third time this month because of weak iPhone demand in China and other emerging markets. Analyst Rod Hall warned of “material risk” to guidance if the current trends continue.

Apple dropped into bear market territory this week, closing 24% below its October peak by Wednesday. On a single day last week, Lumentum Holdings Inc, one of the suppliers that warned of soft demand, plunged 33%, while AMS AG tumbled 22%. This week, as concern spread, the S&P 500 erased its gain for 2018.

The company will conduct an in-depth review of managers with an annual compensation of more than US$150,000 (RM629,354), according to the memo. Other cuts include a planned three billion yuan reduction in expenses at Foxconn Industrial Internet Co Ltd, its Shanghai-listed offshoot.

Apple has adjusted its strategy as growth in the number of smartphones sold each year has slowed. It can charge higher prices for each handset and pull in more money from services, including digital videos, streaming music and data storage.