Fri, Nov 23, 2018 - Page 1 News List

Hon Hai warns on demand, plans to cut back expenses

Bloomberg

Workers walk past a giant cake celebrating the 30th anniversary of Foxconn Technology Group’s first investment in Shenzhen, China, on June 6.

Photo: AP

Hon Hai Precision Industry Co (鴻海), the biggest assembler of iPhones, became the latest Apple Inc supplier to warn of anemic demand, with an internal memo suggesting that expenses would be cut by almost half next year.

The contract manufacturer aims to cut 20 billion yuan (US$2.9 billion) from expenses next year as it faces “a very difficult and competitive year,” an internal document obtained by Bloomberg showed.

The company’s spending in the past 12 months has totaled about NT$206 billion (US$6.7 billion).

Hon Hai shares rose less than 1 percent in early trading in Taipei yesterday.

“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 Technology Group (富士康), as the company is known outside Taiwan, said in an e-mailed statement in response to Bloomberg queries.

Its iPhone business would need to reduce expenses by 6 billion yuan next year and the company plans to eliminate about 10 percent of nontechnical staff, the memo said.

The moves are likely to add to the gloom enveloping Apple and suppliers for the iPhone, its most important product.

Last week, 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 over the past few days.

Goldman Sachs Group Inc 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 dropped into bear market territory this week, closing 24 percent below last month’s peak by Wednesday.

Hon Hai assembles everything from iPhones and laptop computers to Sony Corp PlayStations at factories in China and around the world. The company has been hit by a slowing smartphone market, while trade tensions between the US and China add to global uncertainty.

Earlier this month, Hon Hai posted earnings that were about 12 percent less than expectations.

The company is to conduct an in-depth review of managers with an annual compensation of more than US$150,000, the memo said.

Other cuts include a planned 3 billion yuan reduction in expenses at Foxconn Industrial Internet Co (富士康工業互聯網), its Shanghai-listed offshoot, the memo said.

Apple 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.

However, most of its suppliers rely on increased unit volumes to grow their businesses and have no profitable backup plan as industry growth slows. That has led to the financial warnings at companies such as Lumentum Holdings Inc and Japan Display Inc.

“Suppliers are more dependent on volume than Apple,” Bloomberg Intelligence analyst Woo Jin Ho said.

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