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Deceleration in Foxconn manufacturing seen as a concern for Apple

post #1 of 46
Thread Starter 
A "notable" slowdown in manufacturing at Apple's overseas partner Foxconn has been viewed as a potential issue for the iPad maker, and may result in less availability of products.

JMP Securities downgraded its outlook on AAPL stock on Wednesday, with the change prompted by a deceleration in manufacturing at Foxconn. Analyst Alex Gauna said the change from "Market Outperform" to "Market Perform" is not a result of concerns with Apple itself, but rather the ability of Foxconn to produce Apple products.

"(Foxconn) growth decelerated from 84% (year over year) in the month of December to 37% in January and then again to 26% in February, or levels that are tracking well below the (more than) 70% (year over year) sales growth consensus is looking for in the March quarter, and (greater than) 50% in June," the analysis reads.

The firm has accordingly cut its estimates for the second fiscal quarter of 2011 to $22 billion in revenue, down from $23 billion. Consensus on Wall Street is for Apple to report revenue of $23.1 billion, while Apple's guidance is for $22 billion.

"We don't know the source of the (Foxconn) deceleration, but possible causes could include simply in-line iPhone sales due to more significant Android competition, weakness in computing products as tablet demand grows, and/or product transition risk around the iPad 2," Gauna wrote.



The downgrade is also based on what JMP Securities views as "complacency" on the part of investors over AAPL stock. Gauna noted that Apple has consistently delivered with five years worth of upside surprises in its quarterly earnings, averaging 23 percent.

"Recent Street commentary appears biased towards the momentum continuing, with most numbers moving higher around the CDMA iPhone and iPad 2 launches where clear demand trends have yet to emerge," Gauna wrote.

The note was issued as Apple continues to experience crushing demand for its new iPad 2 in the U.S., which was launched last Friday. Apple has been unable to keep up with consumer interest, and new online orders are now advertised to ship in 4 to 5 weeks.

Also cited in Gauna's note is the recent earthquake disaster in Japan, which forced Apple to delay the launch of the iPad 2 in that country. It was noted that Apple derives 6 percent of its sales from Japan, and key components such as hard disk drives and NAND flash are obtained from the nation.
post #2 of 46
"The sky is falling!" - Chicken Little
post #3 of 46
I don't don't know of a formula for "decelerated" when the Apple estimate looks like a barber shop pole.
post #4 of 46
While this analysis maybe an exaggeration, Apple maybe better served if they had more manufacturing companies in the mix. Why put all your eggs in one basket?
post #5 of 46
According to Wikipedia, an incomplete list of Foxconn clients include:

Apple Inc.
Acer
Amazon
Asus
Intel
Cisco
Hewlett-Packard
Dell
Nintendo
Nokia
Microsoft
Sony
Sony Ericsson
Samsung
Vizio

So of course its logical to conclude that if Foxconn is having problems you should downgrade APPL
post #6 of 46
Sold half my aapl position on this news.
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post #7 of 46
This guy is a crock .. you must analyze what someone says and see if it makes sense. This does not.

Did the "genius" consider that Apple was transitioning to the Verizon CDMA phone launch???? huh huh huh? or IPAD 2 launch huh huh huh? Think sales suck of the ipad 2 Alex???? where is your head? you write sci fi? What a joker - this downgrade is idiotic.

Of course if you are transitioning into 2 unbelievable launches in short time (not to mention lap top/new) ... you need to slower the sprint for the hand off. huge transition - verizon iphone, white iphone, ipad 2 and lap top.

You would naturally expect fox. to slow the increased production in December January.. ding dong .... look at the launch date.

As far as Japan - if anything Alex this horrible incident in Japan assists Apple .. with 1 month back-log in ipad 2 and general backlog as demand outstrips supply. Allows Apple to have enough supply in ipad 2 to have release to ROW.

There is question about demand this current day in Tokyo..... have read that demand may be higher because naturally residents want to be informed - and stores very busy. Even if temporary demand reduction, that simply jacks up demand later when the nuclear thing calms itself. Huge huge huge demand. Prolific - money will be pouring /spending as Japan re-builds.

This guy should be canned ........ maybe he can get a job w/ the Democratic party for Wisconsin to create a spin how people love the legislators leaving on vacation on their dime


Quote:
Originally Posted by AppleInsider View Post

A "notable" slowdown in manufacturing at Apple's overseas partner Foxconn has been viewed as a potential issue for the iPad maker, and may result in less availability of products.

JMP Securities downgraded its outlook on AAPL stock on Wednesday, with the change prompted by a deceleration in manufacturing at Foxconn. Analyst Alex Gauna said the change from "Market Outperform" to "Market Perform" is not a result of concerns with Apple itself, but rather the ability of Foxconn to produce Apple products.

"(Foxconn) growth decelerated from 84% (year over year) in the month of December to 37% in January and then again to 26% in February, or levels that are tracking well below the (more than) 70% (year over year) sales growth consensus is looking for in the March quarter, and (greater than) 50% in June," the analysis reads.

The firm has accordingly cut its estimates for the second fiscal quarter of 2011 to $22 billion in revenue, down from $23 billion. Consensus on Wall Street is for Apple to report revenue of $23.1 billion, while Apple's guidance is for $22 billion.

"We don't know the source of the (Foxconn) deceleration, but possible causes could include simply in-line iPhone sales due to more significant Android competition, weakness in computing products as tablet demand grows, and/or product transition risk around the iPad 2," Gauna wrote.



The downgrade is also based on what JMP Securities views as "complacency" on the part of investors over AAPL stock. Gauna noted that Apple has consistently delivered with five years worth of upside surprises in its quarterly earnings, averaging 23 percent.

"Recent Street commentary appears biased towards the momentum continuing, with most numbers moving higher around the CDMA iPhone and iPad 2 launches where clear demand trends have yet to emerge," Gauna wrote.

The note was issued as Apple continues to experience crushing demand for its new iPad 2 in the U.S., which was launched last Friday. Apple has been unable to keep up with consumer interest, and new online orders are now advertised to ship in 4 to 5 weeks.

Also cited in Gauna's note is the recent earthquake disaster in Japan, which forced Apple to delay the launch of the iPad 2 in that country. It was noted that Apple derives 6 percent of its sales from Japan, and key components such as hard disk drives and NAND flash are obtained from the nation.
post #8 of 46
Analysts had better look for reasons to downgrade this stock because it's surely not going to reach many of those high numbers they've been pushing as target prices and it's easy to see that investors are avoiding purchasing Apple stock and will continue to do so. I can't imagine any individual investors will be buying Apple at its current price so no matter how many iPads Apple sells, Apple's share price will stay at this level or likely drop. This has nothing to do with Apple as a company or its products, it seems to be the flakiness of the economy or hedge-fund strategy that will continue to hold down Apple's share price. A $400+ share price is likely an impossible dream. I'm an Apple shareholder so it has nothing to do with Apple hate but this is honestly how I see it and I hope I'm dead wrong.

I'm sure analysts are coming to this conclusion and will have to find reasons to downgrade Apple to cover their overzealous numbers. This Foxconn slowdown issue does seem to be a bit of a stretch to downgrade Apple on so I suspect there are other reasons for the downgrade.
post #9 of 46
Quote:
Originally Posted by Constable Odo View Post

Analysts had better look for reasons to downgrade this stock because it's surely not going to reach many of those high numbers they've been pushing as target prices and it's easy to see that investors are avoiding purchasing Apple stock and will continue to do so. I can't imagine any individual investors will be buying Apple at its current price so no matter how many iPads Apple sells, Apple's share price will stay at this level or likely drop. This has nothing to do with Apple as a company or its products, it seems to be the flakiness of the economy or hedge-fund strategy that will continue to hold down Apple's share price. A $400+ share price is likely an impossible dream. I'm an Apple shareholder so it has nothing to do with Apple hate but this is honestly how I see it and I hope I'm dead wrong.

I'm sure analysts are coming to this conclusion and will have to find reasons to downgrade Apple to cover their overzealous numbers. This Foxconn slowdown issue does seem to be a bit of a stretch to downgrade Apple on so I suspect there are other reasons for the downgrade.

...hedge their analysis, especially during instances of catastrophe like the Japan disaster. Hedge and retirement funds have invested heavily in Apple stock since it is outperforming the rest of the tech sector, and therefore highly attractive. It wouldn't necessarily be all that bad in the long term for Apple stock to decline some to allow some additional buy-in by smaller, non-fund related investors - Apple would benefit from a more diversified stockholder population, especially if it would dilute some of the institutional holdings.
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post #10 of 46
Quote:
Originally Posted by All Day Breakfast View Post

According to Wikipedia, an incomplete list of Foxconn clients include:

Apple Inc.
Acer
Amazon
Asus
Intel
Cisco
Hewlett-Packard
Dell
Nintendo
Nokia
Microsoft
Sony
Sony Ericsson
Samsung
Vizio

So of course its logical to conclude that if Foxconn is having problems you should downgrade APPL


how about this, the slow down is for all things NON APPLE
we have already seen decrease in netbooks and non apple laptops since ipad

also foxconn employs more than most large cities its massive
I APPLE THEREFORE I AM
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post #11 of 46
Quote:
Originally Posted by All Day Breakfast View Post

According to Wikipedia, an incomplete list of Foxconn clients include:

Microsoft

So of course its logical to conclude that if Foxconn is having problems you should downgrade APPL

The slowdown is because the Zune will no longer be manufactured...
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post #12 of 46
Quote:
Originally Posted by walshbj View Post

Sold half my aapl position on this news.

Really?

Could have told me so I could buy it!!!
post #13 of 46
Quote:
Originally Posted by Hal 9000 View Post

Really?

Could have told me so I could buy it!!!

No, not really. Every time I think about selling a little aapl I end up buying or holding, since 2005 when I got in. Mostly because market share is so low in certain product lines. Tons of room to grow.
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post #14 of 46
Maybe I'm naive, but this makes no sense to me. What does a slowdown at Foxconn have to do with Apple? It would be one thing if the slowdown was due to a labor shortage or manufacturing defects, but if the slowdown is because of declining business from other companies, it seems to me that this either has no effect on Apple or it could even have a beneficial effect as it increases manufacturing capacity for Apple, which seeems to need it.

Apple just sold one million iPads in a weekend. Although this isn't brand new technology, it used to take 12 to 36 months to sell one million of anything electronic when first introduced. And the stock is downgraded? I realize that all stocks are down due to Japan and other factors, but I'm waiting for Apple stock to drop a bit more and then I'm buying again.

Furthermore, because of the damage at many Japanese manufacturing companies, I think it's possible that at least temporarily (where temporary=several years), a lot of additional Japanese manufacturing might move to China and certainly Foxconn would get a piece of that.
post #15 of 46
Quote:
Originally Posted by island hermit View Post

The slowdown is because the Zune will no longer be manufactured...

Hilarious!

But this strikes me as suspicious analysis, or at least it doesn't include good supporting evidence for the conclusion. As has been pointed out already, a slowdown at Foxconn clearly doesn't indicate Apple slowdown. And what's the reason to point to stockholder complacency?

From a straight EPS * typical multiple perspective it's not a stretch from today to $450 shares. (Estimates for 2011 are close to $19 and 2012 are over $21. Grain of salt.) Past performance is no indicator of future performance. The stock price isn't there today yet because of many valid concerns about technology, about competition, etc, but the risk is also calculated into the price history. IMO, it's a great company on a historic tear. I'm a (very) small investor and am happy about what AAPL has done for me. And I read Andy Zaky's educational articles here at AI.
post #16 of 46
That was all a bit muddled as an article or maybe the report.

Regardless this is or will be the next challenge to Apple growing. Being able to produce enough devices. I'd say it is the problem and has been for 12 months.

Besides, foxconn has become too important. Every company is giving away the keys. Designs, production techniques... Foxconn could easily become its own CE brand and screw all of them.

I wrote it earlier, apple, innovate manufacturing.
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post #17 of 46
A joke of an analysis, really. This guy has no clue about where or why the 'deceleration' is coming from, why it only affects Apple, whether Apple has alternatives, whether this is a short/medium/long-term issue for Foxconn, and throws around clueless, vague terms like 'investor complacency' and 'street commentary' on momentum. Not a whit about company or market fundamentals.

Investors actually pay for this sort of thing?!

Let's hope the stock goes down a little more. It'll be a huge buying opportunity. And, let's check back on Mr. Gauna a year from now.
post #18 of 46
Quote:
Originally Posted by Granmastak View Post

While this analysis maybe an exaggeration, Apple maybe better served if they had more manufacturing companies in the mix. Why put all your eggs in one basket?

This sounds to me more like an attempt to short the stock than anything else.

Look at the months discussed. Post Holiday. Of course there might be a slow down, there's simply a slow down in buying during that time. Especially when everyone KNOWS that there's a new phone on the horizon, new laptops, new ipad etc. Apple would be idiots if they flooded the channel with old stuff that no one is going to buy. Slow to stop production and folks will have to buy the new stuff when it hits cause there's nothing else. But our analyst dude doesn't talk about stuff like that.

and yes the whole earthquake etc thing is going to have an impact on deliveries. 'Stupid' Fed Ex and the like think it is more important to deliver aid supplies to those folks without homes and such. I mean how dare they. Don't they know that everyone in the US getting their precious ipad toys on launch weekend is more important. Apparently this analyst sure feels that way.
post #19 of 46
Quote:
Originally Posted by ddawson100 View Post

Hilarious!

Well maybe funny, but we'll see down the road if possibly, MSFT is getting a little more focused on what they do: software! (I purposely left out "best", because that's definite Troll-bait

Quote:
....And I read Andy Zaky's educational articles here at AI.

Yeah.. me too. So where is he to give the rest of "us" some guidance. I don't trust Anal-cysts in the least!
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post #20 of 46
I was in the IB business and read numerous research reports on daily basis. This guy aren't even sure about the business de-composition of Foxconn business and jump to the conclusion that it must be related to APPLE (guts feel? haha). I think there are funny people from the hedge fund industry who work with each other to create a short sell opportunity (or they are dying to cover their shorts).

I think it is fair to question AAPLE momentum, but it seems the more legitimate questions are 1. Whether/how the chips industry in Japan will impact the supplies of Apple products, particularly in NAND, or 2. may be this clever guy "just knew" (from god, may be) that Apple is seeing a slow down in its sales or 3. He knows something about Steve Jobs health and we don't. These are legitimate doubts, and if he can find support information on these 3 areas then I think he is serious enough to downgrade Apple.

Yes, Apple are too heavily/widely held and mkt cap is too big thus market is both expecting a PE compression process or finding an excuse to cut allocation or finding an excuse to increase holdings at lower entry point. But if anyone is making their buy/sell decision based on such a stupid call/report, I will be damned.

BTW AppleInsider is the best site for Apple, their product review is thorough and their financial/product/business review is at par and sometimes better than those top IBs analysts. Keep up with the good work!
post #21 of 46
Not to be another "what an idiot," but does the analyst realize that Petagron will see a significant growth share with the CDMA iPhone?! From where I sit, Foxcon's other customers are likely more flat in average than Apple, but Apple's divestiture away from Foxcon suggests that they may be reaching the limits of their exponential growth phase. It is amazing it has lasted this long!

Oh well, I got a great deal on some May $300 calls because of it.

Japan I am willing to have more concern on relative to Apple. Not worried about NAND or chip production, but the spirit of panic in 6% of their market is an uncomfortable feeling. I think China can make up for this in the short run, but I wonder how people will respond longer term...
post #22 of 46
I'd be prepared to wait 5 weeks if it will stop people feeling like the only way out is to end their lives. In the west we just expect everything right-now. It's time we all realized our wants and needs cost.
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post #23 of 46
I don't understand.

Microsoft manages to sell 10.000.000 Kinects's in only four months. How come Apple is still surprised by the success of their iPad? iPad 1, okay. But iPad 2? Come on!

On a side note: Microsoft's Kinect is the fastest selling consumer product ever. They too were surprised by their success, but they managed to overcome their problems. The question is: How did they do it?!
post #24 of 46
Quote:
Originally Posted by Granmastak View Post

While this analysis maybe an exaggeration, Apple maybe better served if they had more manufacturing companies in the mix. Why put all your eggs in one basket?

I thought the same thing. When Sony experienced high initial demand for the (then new) PS3, they added manufacturing capacity by contracting a second manufacturer. I think it may have been Foxconn. Of course, whomever was chosen must meet Apple's quality standards.

"Apple should pull the plug on the iPhone."

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post #25 of 46
Quote:
Originally Posted by island hermit View Post

The slowdown is because the Zune will no longer be manufactured...

I feel badly for that one worker who had to keep dusting off those Zunes. So much for job security.
post #26 of 46
That is basically the hypothesis of the analysis, if quoted and interpreted correctly by Apple Insider writer***. If we assume that the Apple Insider writer did indeed interpret the original report correctly, then the analysis is gravely flawed. This is similar to falacies in logic:

"The sun is not seen to rise or set when the weather is very bad. Therefore, the sun rises and sets only if the weather is good (i.e., the sky is clear."+++

As noted by another poster, and should be obvious to one who is familiar with many techno-manufacturing giants in Asia, they usually manufacture products for a number of companies. And the really good ones or giants among them, like Samsung may be manufacturing and selling almost "the same manufactured products or other products, under their own name brand.

The overall slump in the PC, including netbooks and other products can impact the overall growth of companies, like FOXCON, in spite of the fact that their Apple business partnership is thriving. As a testament to this, it has been reported that FOXCON started to build new factories in another region of China, mainly in anticipation of the increased growth of their Apple business. These new plants are supposed to be in operation sometime this year.


For those who are not familiar with the business of a number of the big techno-manufacturing empires in Asia, a possible analogy to FOXCON would be Microsoft. Many of Microsoft's products and services are lagging or completely tanked the past decade (and continue to do so among some of their more recent products and services). Without the legacy MS Windows PC licensing revenues (and the main reason why Microsoft remains "more profitable" than Apple, for now), Microsoft is essentially stagnating or even declining in a number of its products and services offerings.

In fact, the situation is even more dire in the case of Microsoft (relative to FOXCON). Microsoft is supposed to be licensing its Windows 7 mobile software for a fee. Instead, if the rumors proved to be correct, Microsoft is actually paying Nokia (another giant losing marketshare) in the Nokia-Microsoft recent alliance.

The latter is a desperation strategy in the part of Microsoft in its effort to keep the Microsoft Windows 7 (soon to be 8???) almost akin to the "Hail Mary" pass in US football.

But contrary to the predicts of many (including Apple sympathizers), Microsoft will remain "profitable" for many years to come, albeit stagnating and possibly declining shares in many of its other business products and services. However, as profitable th Windows software may be to Microsoft, this cash cow is threatened by the ascendance of mobile computing products, including tablets, will erode the PC computer share. So far, Microsoft has shown no skills to compete successfully in the mobile computing products, including tablets.

CGC

***Apple Insider or most Apple-centric sites rarely cited or provided links to the original report, just a link to another report interpreting the original document.

+++The observation of the sun rising or setting is due to the full rotation of the earth during a 24-hour period. Not observing the sun rising or setting due to bad weather obscuring the phenomena is local.
post #27 of 46
Quote:
Originally Posted by mr O View Post

I don't understand.

Microsoft manages to sell 10.000.000 Kinects's in only four months. How come Apple is still surprised by the success of their iPad? iPad 1, okay. But iPad 2? Come on!

On a side note: Microsoft's Kinect is the fastest selling consumer product ever. They too were surprised by their success, but they managed to overcome their problems. The question is: How did they do it?!

One thought... MS is in the software business, for the most part their hardware business runs at a loss... maybe they don't mind having excess inventory sitting around.

Let's wait four months... maybe Apple will have sold 10 million units. You have to remember, Apple is at the top of the pile and everyone likes to take shots at it... so of course all you're going to hear are the negative stories.
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post #28 of 46
Time to add another bunch of AAPL shares!
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post #29 of 46
Quote:
Originally Posted by walshbj View Post

Sold half my aapl position on this news.

I'm buying on this news... thanks for the shares, see you at 400
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post #30 of 46
Quote:
Originally Posted by walshbj View Post

Sold half my aapl position on this news.

You should have held out, B.
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post #31 of 46
Quote:
Originally Posted by walshbj View Post

No, not really. Every time I think about selling a little aapl I end up buying or holding, since 2005 when I got in. Mostly because market share is so low in certain product lines. Tons of room to grow.

With that logic you would be buying not selling. it doesn't make sense to sell now unless you think the stock is going to tank even more and not recoup.
post #32 of 46
Quote:
Originally Posted by macnyc View Post

With that logic you would be buying not selling. it doesn't make sense to sell now unless you think the stock is going to tank even more and not recoup.

Better yet, you should have bought Put options on the news, and hold on to the shares.

This way, the Puts will make money on the news, and the shares will keep appreciating when it rebound.
post #33 of 46
Quote:
Originally Posted by anantksundaram View Post

A joke of an analysis, really. This guy has no clue about where or why the 'deceleration' is coming from, why it only affects Apple, whether Apple has alternatives, whether this is a short/medium/long-term issue for Foxconn, and throws around clueless, vague terms like 'investor complacency' and 'street commentary' on momentum. Not a whit about company or market fundamentals.

Investors actually pay for this sort of thing?!

Let's hope the stock goes down a little more. It'll be a huge buying opportunity. And, let's check back on Mr. Gauna a year from now.

Good call. This Alex dude is using 200-days moving averages how lame ... AAPL has been appreciating better than any tech stocks and he's using outdated moving averages to do his forecast ... sad .... when AAPL hits $400 at year-end, the 200 days moving averages would still be in the 200's .... what a moron.
post #34 of 46
Quote:
Originally Posted by AppleInsider View Post

JMP Securities downgraded its outlook on AAPL stock on Wednesday, with the change prompted by a deceleration in manufacturing at Foxconn. ...
"(Foxconn) growth decelerated from 84% (year over year) in the month of December to 37% in January and then again to 26% in February, or levels that are tracking well below the (more than) 70% (year over year) sales growth consensus is looking for in the March quarter, and (greater than) 50% in June," the analysis reads.

Maybe they could look at the weather to predict Apples growth.
Figure 2. blue represents the banana production in Brazil?

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post #35 of 46
Quote:
Originally Posted by walshbj View Post

Sold half my aapl position on this news.

You should have used the emoticon. Several people believed you.
post #36 of 46
Another Anal-ist being over dramatic! What's even more stupid is everyone in the stock market actually believes this CLOWN!!!!
post #37 of 46


Who the heck is this guy!
One OEM factory slow down and down grade a company?

I might have to wait 1 month for a ipad 2 and by the time I got it,
I may need to wait another two month for a iphone 5.

News from Hong Kong that the first 100 ipad 2 (from grey market) sold US$1,300
and iphone 4 still back order!!

On the street, teenager has to be careful not letting their iphone 4 robbed (used iphone can still sell for US$700.

Apple products is in HIGH demand in China! Just China alone can sell over 5 million ipads.
post #38 of 46
This would be an opportune time for Apple to buy AAPL.
post #39 of 46
Quote:
Originally Posted by NOFEER View Post

how about this, the slow down is for all things NON APPLE
we have already seen decrease in netbooks and non apple laptops since ipad

also foxconn employs more than most large cities its massive

Quote:
Originally Posted by cy_starkman View Post

That was all a bit muddled as an article or maybe the report.

Regardless this is or will be the next challenge to Apple growing. Being able to produce enough devices. I'd say it is the problem and has been for 12 months.

Besides, foxconn has become too important. Every company is giving away the keys. Designs, production techniques... Foxconn could easily become its own CE brand and screw all of them.

I wrote it earlier, apple, innovate manufacturing.

The quality of the analyst's report aside (it's very superficial as many have noted and doesn't even allude to many important variables), the discussion of Foxconn in general raises two questions to me.

The first is already alluded to above, i.e., when will Foxconn use all of its accumulated production experience to start competing directly with some or all of these companies it's a subcontractor for, knowing everything it does about all of their designs, processes, etc.? And theft (and near theft) of intellectual property in the "new China" is no more news these days than dog bites man.

I think "when" is a better word than "if," as this has happened with US industries and Asian suppliers many (many) times before since WWII, after all, and as noted by NOFEER, Foxconn is not exactly without some heft.

And second, since Apple's superior build quality to most of the other companies mentioned as FC clients is well-known (and constantly discussed here), how ironic is it that many of their products are all assembled in the same "shop" (yes I know Foxconn has many plants and separate production lines - but they are one company).

I mean, seriously, how does this work, i.e., slap-dash hash work on cheap Dells and precision, high-quality finishing on Macs? Is the difference all in the parts bin and original design specs, or do they actually put more focus on the Apple assembly lines? Or is there less diff in build quality than we actually think?

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post #40 of 46
So, uh, none of you lot actually own enough AAPL or FXCNY to track what really is happening with either firm, eh?

FoxConn is moving through the process of picking up a Chinese government subsidy and other perks to build additional facilities in western China and hire another 200,000 employees.

Yup - sounds really slow.
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