Largest Apple Supplier Planning Billions In Cost Cuts On iPhone Woes

With Goldman Sachs cutting its price target on Apple shares for the third time this month while the consumer-tech giant's shares sink into bear-market territory, more signs of slowing iPhone demand have emerged Wednesday morning to hammer the shares of Apple suppliers, and perhaps Apple itself.

According to Bloomberg, which cited an internal memo, Foxconn Technology Group, the company's largest assembler of its phones, is planning to cut some 20 billion yuan ($2.9 billion) in expenses next year following a "very difficult and competitive year" - the latest sign that Apple suppliers are bracing for a sustained slowdown in orders that could have a lasting impact on their bottom line. Some 6 billion yuan ($900 million) worth of cuts will affect Foxconn's iPhone business. The company’s spending in the past 12 months is about NT$206 billion ($6.7 billion).

Apple

The memo said the company would review performance of managers with an annual compensation of more than $150,000, along with a planned 3 billion yuan ($450 million) reduction in expenses at Foxconn Industrial Internet Co., Foxconn's offshoot in Shanghai.

"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 said in an emailed statement in response to Bloomberg queries.

Reports about Foxconn's cuts followed a WSJ report published Tuesday about cuts at three Apple suppliers. Earlier this month, four suppliers on three continents slashed their revenue forecasts, citing weak demand for Apple's latest batch of iPhones. This in turn triggered a blowup in shares of Lumentum and other suppliers that infected the entire tech space.

Fortunately for Foxconn, Apple isn't its only customer: The company assembles everything from iPhones and laptop computers to Sony Corp. PlayStations at factories around the world. It's even building a factory in Wisconsin that President Trump has heralded as a sign of jobs flowing back to the US (though the company hopes to staff it with either Chinese nationals or robots). 

With trade tensions adding to global uncertainty and threatening to upset supply change, suppliers of smartphone components are struggling with an inevitable trend: After years of torrid growth, smartphone sales have finally plateaued. Companies like Apple are adjusting to this by charging more per unit and offering more paid services like digital storage. But suppliers thrive on volume, which means they will have little recourse as sales fall.