Fri, Feb 22, 2013 - Page 14 News List

Foxconn hiring freeze raises demand concerns

SLOWDOWN?The company said the decision was not based on iPhone 5 production, while an analyst said the firm has been hurt by Apple using more assemblers

By Tim Culpan and Adam Satariano  /  Bloomberg

Foxconn Technology Group (富士康科技集團), the maker of electronics products including Apple Inc’s iPhone, said it was freezing hiring at factories in China, fueling concern about a slowdown in consumer-electronics demand and prompting Apple shares to fall.

Foxconn halted recruitment until the end of next month after more workers returned from the Lunar New Year break than a year earlier, Bruce Liu, a spokesman for the Taipei-based company, said by telephone on Wednesday.

The decision was not related to iPhone 5 production, he said, countering an earlier Financial Times report.

The hiring halt may also reflect how Foxconn’s Hon Hai Precision Industry Co (鴻海精密) has been hit by the introduction of a smaller iPad and Apple’s move toward using more assemblers, Fubon Securities Co (富邦證券) analyst Arthur Liao (廖顯毅) said.

“Hon Hai’s major product, the 9.7 inch iPad, is in decline,” Liao said. “For the iPad Mini, Hon Hai has to share.”

Pegatron Corp (和碩) assembles about 40 percent of iPad Minis, Liao said. Foxconn is the sole manufacturer of the original iPad, which is losing market share to the new version, he said.

The hiring freeze may also reflect a wider increase in Chinese workers returning after the Lunar New Year break, said Amit Daryanani, an analyst at RBC Capital Markets LLC. Close to 90 percent of workers have returned this year, compared with traditional levels below 80 percent, Daryanani wrote in a note on Wednesday, citing company checks.

“We do understand why the hiring freeze may get construed negatively,” he wrote.

However, the timing of the freeze suggests “it may have more to do with higher return rates of employees versus what was expected.”

Foxconn has more than doubled wages and cut hours for workers following protests from rights groups, including China Labor Watch and Students & Scholars Against Corporate Misbehavior. The company is also giving workers greater representation in unions.

Many migrant workers in China make their only trip home during the week-long Lunar New Year holiday break, which this year started on Feb. 11.

Foxconn may also have stopped hiring because of Hewlett-Packard Co ordering fewer personal computers, said Steve Milunovich, an analyst at UBS AG.

Hewlett-Packard accounts for about 8.1 percent of Hon Hai’s revenue, trailing only Apple’s 33 percent share, according to Bloomberg supply-chain estimates.

Hon Hai has also decided to postpone the expansion of capacity at a plant in Zhengzhou, China, where iPhones are assembled, the Nikkei Web site reported yesterday.

The newswire reported last month that orders for iPhone 5 parts had been cut by about 50 percent following lower-than-expected sales.

Apple will sell 38 million iPhone 5s this quarter, 20 percent less than the prior period, forecast Alexander Peterc, an analyst at Exane BNP Paribas.

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