According to the news report by Bloomberg, Foxconn Technology Group, the Apple iPhone’s biggest assembler, is now the latest Apple Inc. supplier that has warned its investors of weakened demands.
The company sent out an internal memo, which Bloomberg was able to obtain, that indicated that expenses were going to be almost halved in the next one year.
One of Apple’s biggest contract manufacturers, Foxconn stated that it was planning to reduce expenses in 2019 by at least 20 billion yuan (~$2.9 billion) since it was facing a very “difficult” as well as “competitive” year.
According to the documents obtained by Bloomberg, Foxconn’s spending in the last one year has been about NT$206 billion, which amounts to about $6.7 billion. The company’s shares, which trade under the name Hon Hai Precision Industry Co. in Taiwan and Asia, gained less than 1% in trading in Taipei on Thursday. Earlier in the month, the company’s shares were 12% below market expectations.
When Bloomberg contact Foxconn for comments, the company responded via email, stating that the review that their team had carried out this year was no different from the ones carried out in previous years. The manufacturer stated that this review was designed to ensure teams and budgets within the company were aligned with not just current but also anticipated customer needs, Foxconn’s global operations as well as market and economic challenges they might face over the next few years.
Foxconn, based out of Taipei, Taiwan, assembles a wide range of technology related products such as Apple’s iPhones, laptops, Sony Corp.’s PlayStations. The company does this from its plants in China as well as other parts of the world.
In recent times, the assembler has been impacted by a slowing smartphone market and the trade war between the US and China has added further uncertainty about the suppliers’ future.
The internal memo also stated that Foxconn’s iPhone division would need to reduce expenses by at least 6 billion yuan (~$865.53 million). Additionally, the company would also be cutting at least 10% of the non-technical staff in the same division.
These actions on the part of Foxconn will only add to the negative sentiment surrounding Apple and its iPhone suppliers. In fact, the news hasn’t been good for Apple’s suppliers, with four of them – from three different continents – stating that they were cutting their revenue guidance due to weak demand for the iPhone.
This announcement is what triggered the rout in technology shares that brought the stock market to its knees this week.
The bad news doesn’t end there. Goldman Sachs’ analysts cut their share price target for Apple for the third time in just one month because of the weakening demand for iPhones in China as well as other emerging markets across the globe. Goldman Sachs’ analyst Rod Hall warned that there could be “material risk” to Apple’s guidance if this downward trend in the demand for iPhones continues.
Apple’s share prices slipped into bear territory this week, closing yesterday’s trading down by 24% since its October peak. In fact, just in one day last week, one of Apple’s suppliers that had warned that the demand for iPhones was weakening – Lumentum Holdings Inc. – saw its share prices plunge by 33%. Another supplier – AMS AG – saw its share prices tumble 22% in one day too.
And as industry growth slows, Apple’s suppliers, who are dependent on volume demand to grow, are faced with financial warnings.
This week, as concerns about Apple’s ability to sustain growth spread across the market, the technology sector rout pulled down the S&P 500 so badly that the entire year’s gains were wiped out in one fell swoop.