Foxconn plans $2.88 bn cost cutting due to dull iPhone sales

Taiwan’s Foxconn plans to cut 20 billion yuan or $2.88 billion from expenses in 2019 as the company faces a very difficult and competitive year, Bloomberg reported.
Apple supplier FoxconnTaipei-based Foxconn, which assembles Apple iPhones, laptops and Sony’s PlayStations, among others, at factories in China and around the world, spent about NT$206 billion or $6.7 billion in the past 12 months.

Foxconn’s revenue is facing challenges due to a slowdown in the global smartphone market. Earlier this month its flagship Hon Hai Precision Industry posted earnings that were about 12 percent below expectations.

Foxconn counts Apple as one of its top customers for assembling iPhones, Reuters reported. The iPhone business will need to reduce expenses by 6 billion yuan next year and Foxconn plans to eliminate about 10 percent of non-technical staff. Apple lost its number two position to Huawei in the recent quarter.

Foxconn will conduct review of managers with an annual compensation of more than $150,000. Other cuts include a planned 3 billion yuan reduction in expenses at Foxconn Industrial Internet, its Shanghai-listed offshoot.
Apple iPhone market share Q3 2018Apple 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.

Most of its suppliers rely on increased unit volumes to grow their businesses and have no profitable back-up plan as the industry growth slows. “Suppliers are more dependent on volume than Apple,” said Woo Jin Ho, an analyst at Bloomberg Intelligence.

Earlier this month, Nikkei daily reported that Apple told Foxconn and rival Pegatron to halt plans for additional production lines dedicated to the iPhone XR. There are media reports that iPhone XR did create much demand in India and China.

Apple this month reported a lower-than-expected sales forecast for the Christmas quarter due to weakness in emerging smartphone markets.

Apple suppliers including U.S. firm Lumentum Holdings, British chipmaker IQE, screen maker Japan Display and facial recognition supplier Lumentum issued warnings about their financial results.