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Foxconn reveals huge cost of Apple dependence

by on22 November 2018

Has to make $2.9 billion to avoid an annus horribilis

Foxconn is planning to cut $2.9 billion from expenses in 2019 as it faces "a very difficult and competitive year".

The difficult year is mostly due to its biggest and most successful supplier, Apple suddenly cutting its orders.

According to Bloomberg, citing an internal company memo, "The iPhone business will need to reduce expenses by [about $900 million] next year, and the company plans to eliminate about 10 percent of non-technical staff".

Foxconn's spending in the past 12 months is about $6.7 billion, so 2.9 billion is rather a big cut.

To be fair, it is not the company’s Apple dependence which is entirely at fault. It looks like Foxconn is gearing up for a real mess with the US and China trade war.

The company will conduct an in-depth review of managers with an annual compensation of more than $150,000. Other cuts include a planned $433 million reduction in expenses at Foxconn Industrial Internet, its Shanghai-listed offshoot.

"The review being carried out by our team this year is no different than similar exercises carried out in past years to ensure that we enter into each new year with teams and budgets that 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 said in a statement to Bloomberg.

Foxconn is the latest Apple supplier to warn of anaemic demand, with an internal memo suggesting that expenses will be cut by a half next year.

Foxconn’s iPhone business will need to reduce expenses by six billion yuan next year, and the company plans to eliminate about 10 percent of non-technical staff, according to the memo.

All this adds to the gloom enveloping Apple and suppliers for the iPhone as the cash cow is clearly dying and waiting for its life support to be switched off.

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 is now 24 percent below its October peak.


Last modified on 22 November 2018
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