Foxconn Plans ‘Deep Cuts’ Amid Weak iPhone Demand

Taiwan-based Foxconn (otherwise known as Hon Hai Precision Industry) is reportedly planning “deep cost cuts”, adding to fears over demand for the latest Apple iPhones.

For many years Foxconn has been the biggest maker of Apple iPhones, but now an internal memo seen by media outlets has suggested that it is looking to cut costs by almost a half next year.

The Foxconn warning comes after four iPhone suppliers last week, including Lumentum and Japan Display, cut their revenue estimates because of weak iPhone demand.

Cost cutting

Foxconn’s memo said it plans to cut 20 billion yuan ($2.9 billion) from expenses in 2019 as it faces “a very difficult and competitive year,” according to an internal document obtained by Bloomberg.

In the past 12 months, the contract manufacturer’s spending has been approximately $6.7 billion.

“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.

The firm said the review is 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 also revealed that its iPhone business will need to reduce expenses by 6 billion yuan ($865m) next year and the company plans to eliminate about 10 percent of non-technical staff, according to the memo.

It should be remembered that Foxconn doesn’t just make the Apple iPhone. It also makes laptops, PlayStations and other consumer technology.

But the news that it is cost cutting at its iPhone business as well signals that the firm is being hurt by a combination of slowing smartphone sales, as well as the trade tension between the United States and China.

Earlier this month Hon Hai posted earnings that were roughly 12 percent below expectations.

Apple strategy

Apple of course has responded to the slowing down of iPhones sales, its principle cash cow, by making the handsets even more expensive.

It launched the iPhone X in 2017 for example, at a starting price of $999 in the United States.

Then in September this year, it doubled down on this strategy when it decided not to produce an iPhone 9 at all.

Instead it launched the iPhone XS, with prices starting at $999, as well as the iPhone XS Max, the largest iPhone to date and also the most expensive with prices starting at $1,099.

That said, Apple did also introduce a lower-cost 6.1-inch (15.5 cm) iPhone XR made of aluminium and glass, which is effectively positioned between last year’s iPhone 8 and iPhone 8 plus, but is able to sold a cheaper price ($749) thanks to its use of a cost effective LCD screen.

Apple is also seeking to make more money from services, and other products such as the newly released Apple Watch (series 4) and iPad Pro etc.

Quiz: How well do you know Apple?