Foxconn is slashing costs ahead of a 'difficult' year - and it's the latest warning sign for Apple
- Foxconn, Apple's top manufacturing partner, has reportedly said that the upcoming year could be "very difficult and competitive" and that it is planning to slash expenses, according to Bloomberg.
- A Foxconn executive told Business Insider that the Bloomberg report is describing a regular business planning process that it does every year.
- The news comes as many different Apple suppliers have been slashing forecasts, suggesting that iPhone demand is soft and the iPhone giant is cutting orders.
- Apple's share price has declined over 20% and the company has lost over $265 billion in market value from its October peak.
Foxconn makes the majority of iPhones - it's Apple's top manufacturing partner.
So if it's slashing 20 billion yuan ($2.9 billion) in expenses ahead of what an internal memo says could be a "very difficult and competitive year," as Bloomberg reported on Wednesday, that could be another bad sign for iPhone demand.
Bloomberg's report reflected a regular business planning process that the company goes through every year, Foxconn's Louis Woo said in an email to Business Insider.
"We regularly review our global operations to ensure that we are always applying our resources in a way that supports our operations, our customers' demands and critical research and development priorities while also meeting the needs of all areas of our company. These reviews enable us to meet our long-term responsibilities and commitments to our customers, our employees and business partners, and to our shareholders," Foxconn Technology Group said in a statement.
"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," it continued.
Foxconn isn't the only supplier to slash forecasts
Before Foxconn's warning and earnings shortfall, several other suppliers of parts to Apple for the iPhone had warned about orders being cut. Lumentum, Skyworks, and Qorvo all count Apple as a top customer and have slashed future estimates, each blaming the shortfall on order cuts from a major customer. The Wall Street Journal reported on Monday that Apple had cut production orders for all iPhone models, blaming weak demand.
Wall Street analysts are also worried iPhone unit sales will start shrinking in the short term. Those concerns are believed to be why Apple decided to stop reporting unit sales, which analysts relied on as a key metric. Apple said it preferred to focus on its transition to a services company, with regular recurring revenue.
Apple's share price has declined over 20% and the company has lost over $265 billion in market value from its October peak.
Of course, Foxconn doesn't just manufacture Apple products. It's also the manufacturer for other computer and phone brands, as well as gadgets like Sony's PlayStation and Nintendo's Switch. Foxconn's belt-tightening may simply reflect a cooling global market for premium electronics, instead of specific Apple weakness.
Foxconn is also spending billions on the construction of a factory in Wisconsin. It's unclear whether Foxconn's cost cuts may affect that plant, which President Donald Trump called an "incredible investment."
But regardless, all signs from companies that count Apple as a customer are now pointing to an impending slow period for sales and growth.