Foxconn Technology Group, Apple's biggest maker of iPhones, plans to cut spending by 20 billion yuan ($ 2,900 million) by 2019, as it faces "a very difficult and competitive year," according to an internal company report .
The iPhone business will have to cut spending by 6 billion yuan next year and the company plans to lay off about 10 percent of non-technical staff, according to a memo obtained by Bloomberg. The company's spending over the past 12 months is approximately 206 billion yuan ($ 6.7 billion). Foxconn declined to comment.
Foxconn's measures are likely to increase the pessimism surrounding Apple and its suppliers of inputs to the iPhone, its most important product. Just last week, four suppliers on three continents slashed their revenue estimates due to weak demand. This has caused a decline in technology stocks that has been extended to the general market in recent days.
Goldman Sachs cut its price target for Apple for the third time this month due to weak iPhone demand in China and other emerging markets. Analyst Rod Hall warned of the "real risk" of projections if current trends continue.
Apple fell on the market on Tuesday and closed more than 20% below the October peak. In a single day last week, Lumentum Holdings Inc., one of the vendors that warned about low demand, tumbled 33 percent, while AMS AG fell 22 percent. This week, with the spread of concern, the S & P 500 eliminated its profit for 2018.
Taipei-based Foxconn mounts everything from iPhones and laptops to Sony's PlayStation in factories in China and around the world. Foxconn was affected by the slowdown in the smartphone market, while trade tensions with the United States increase global uncertainty. Earlier this month, its main company, Hon Hai Precision Industry Co., reported earnings 12% below expectations.
The company will conduct an in-depth analysis of managers with annual compensation of more than $ 150,000, according to the memo. Other cuts include a planned reduction of 3 billion yuan in expenses of Foxconn Industrial Internet Co., its Shanghai-listed subsidiary.
Apple has adjusted its strategy since growth in the number of smartphones sold each year has been reduced. You can charge higher prices for each phone and get more money from services, including digital videos, streaming music and data storage.
But most of its suppliers depend on a larger volume of units to expand their business and do not have a profitable support plan as the industry's growth slows. This has led to financial warnings in companies such as Lumentum and Japan Display Inc.
"Providers are more dependent on volume than Apple," said Woo Jin Ho, an analyst at Bloomberg Intelligence.