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Foxconn may sell own branded accessories after Apple profits dip

post #1 of 43
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With most of its profits believed to come from manufacturing Apple products, Foxconn plans to diversify its business, and is even planning to build, brand and directly sell its own electronics accessories compatible with devices like the iPhone and iPad.

Details about Foxconn's internal plans were shared with The Wall Street Journal by an unnamed executive at the company, which is also known as Hon Hai Precision Industry Co. According to a report published Monday, Foxconn is "aggressively" moving to add new clients and expand its business to reduce reliance on Apple.

Tim Cook at Foxconn
Apple CEO Tim Cook touring an iPhone production line at a Foxconn plant in Zhengzhou, China.


Last quarter, Foxconn saw its revenue fall 19 percent in the first quarter of 2013, though net profit was up 2.9 percent. The revenue reduction coincided with Apple's first year over year profit decline in a decade.

Market watchers suspect that Apple is responsible for about 50 percent of Foxconn's revenue, though the company doesn't offer such numbers in detail.

But according to the unnamed executive, Foxconn plans to be able to supply all of the components for devices it assembles. Currently, customers like Apple must buy their components from multiple vendors, and provide them to Foxconn to have the final product assembled.

Beyond its ambitious manufacturing plans, Foxconn is also reportedly interested in selling its own branded accessories, including cables, headphones and keyboards that would be compatible with Apple products such as the iPhone and iPad.

Foxconn may even sell its own electronics and those of its partners directly, Monday's report said. The company is said to be investigating online retail operations, because those sales could generate higher margins than its current manufacturing efforts.

Foxconn's efforts to lessen its reliance on Apple's iPhone for its profits were first detailed earlier this month by The New York Times, though Monday's latest report offers more specifics on what those plans may entail. The company has also shown increased interest in televisions, and bought a significant stake in LCD maker Sharp as part of those plans.

Apple's declining profits come as the company has yet to release any major products thus far in 2013. CEO Tim Cook signaled in April that major new products will be arriving this fall and throughout 2014.

In the interim, Apple is expected to introduce new MacBook models at its annual Worldwide Developers Conference in June. In particular, MacBook Air inventory has been drying up ahead of the company's planned June 10 keynote. But the Mac has become an increasingly small part of Apple's business, as the high-margin iPhone and iPad have come to represent the lion's share of the company's revenue.
post #2 of 43
Without asking Tim Cook or some senior Apple's supply chain people, it's impossible to know how much of this is attributable to slowing demand from Apple, and how much from Apple's strategy to diversify its supply chain. Pegatron announced it would hire 40,000 more workers, which can only mean a big order from someone. I guess after years of running with single supplier for each critical stage, Cook has finally changed his strategy and use multiple suppliers to spread out the risks.
post #3 of 43
I hate when AI runs with the meme that everything an Apple supplier does or is rumored to be doing is because of falling demand from Apple products. 1rolleyes.gif
post #4 of 43
Doesn't demand always slow before a big expected Apple product release?
Isn't this a seasonal transition when people know Apple is about to release new products so they simply just don't buy.....

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post #5 of 43
More iPads and iPhones selling per quarter: clearly must be a sign of slowing demand.
Citing unnamed sources with limited but direct knowledge of the rumoured device - Comedy Insider (Feb 2014)
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post #6 of 43
Quote:
Originally Posted by geekdad View Post

Doesn't demand always slow before a big expected Apple product release?
Isn't this a seasonal transition when people know Apple is about to release new products so they simply just don't buy.....


So you're saying that Apple is going to release something within the next month?

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post #7 of 43
The Wall Street Journal. 'Nuff said.
post #8 of 43
Quote:
Originally Posted by island hermit View Post


So you're saying that Apple is going to release something within the next month?

WWDC on June 10th....new products....start the summer cycle of product releases/announcements. You might even see something in the fall too in time for the holiday shopping season...... I hope you were being sarcastic....

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post #9 of 43
Quote:
Originally Posted by geekdad View Post

Doesn't demand always slow before a big expected Apple product release?
Isn't this a seasonal transition when people know Apple is about to release new products so they simply just don't buy.....

 

That's not the point, apple isn't going to release anything and that's the wise thing to do.

 

The problem is that tech blogs are talking about lower demand (apple is doomed) when Apple is using other companies like pegatron, TSMC (etc) more and more instead of relying exclusively on 1 manufacturer.

post #10 of 43
Quote:
Originally Posted by geekdad View Post

WWDC on June 10th....new products....start the summer cycle of product releases/announcements. You might even see something in the fall too in time for the holiday shopping season...... I hope you were being sarcastic....


Do they normally announce products at WWDC?

 

I thought Apple was only releasing in the fall? Why would it be slowing down already for a product releases in the fall?

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post #11 of 43
Quote:
Originally Posted by pedromartins View Post

 

That's not the point, apple isn't going to release anything and that's the wise thing to do.

 

The problem is that tech blogs are talking about lower demand (apple is doomed) when Apple is using other companies like pegatron, TSMC (etc) more and more instead of relying exclusively on 1 manufacturer.

I see your point........Yes...Apple does use other suppliers. If orders for Foxconn as slowing then maybe Apple just shifted order to another one of their suppliers. I get that. But the point i was making is people who buy Apple usually wait to buy until after rumored product launches are over. They either buy the new product released or buy the previous product that might be available at a reduced price.

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post #12 of 43
Quote:
Originally Posted by Rogifan View Post

I hate when AI runs with the meme that everything an Apple supplier does or is rumored to be doing is because of falling demand from Apple products. 1rolleyes.gif

 

The article didn't say "falling demand".   It talked about falling profits, which is not always the same thing.  The iPad mini seems to be in demand, yet it makes less profit than the original iPad.

 

That said, Hon Hai (Foxconn's parent) has had falling profit margins during the past half decade, and it's true  that analysts often tie their fate together with Apple's.   E.g. in charts like this one:

 

 

Although, look at the HonHai trend downward just before the "IPhone debuts" line.  It sure looks like Apple caused HonHai profits to level out for a while.

post #13 of 43
Quote:
Originally Posted by island hermit View Post


Do they normally announce products at WWDC?

 

I thought Apple was only releasing in the fall? Why would it be slowing down already for a product releases in the fall?

Yes they do......

 

http://appleinsider.com/articles/13/05/24/haswell-chips-could-bring-50-more-battery-life-to-apples-next-gen-macbooks

 

http://appleinsider.com/articles/13/05/08/traffic-from-apples-unannounced-ios-7-spikes-ahead-of-wwdc

 

http://appleinsider.com/topic/iPhone+5S

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post #14 of 43
I wonder what Apple thinks about this. Since Foxconn makes devices they would have a head start on other accessory makers (think cases, for example).

I can't see Apple allowing Foxconn to abuse their position to bring products to market quicker (or even on the same day Apple releases a new device).
post #15 of 43
Quote:
Originally Posted by Ireland View Post

More iPads and iPhones selling per quarter: clearly must be a sign of slowing demand.

 

Apple product demand is falling down despite the rise. You need to consider the market growth relative to Apple products. Of course , with pink glasses, I understand that some people prefer to see a rise. But in reality, its a decline.

 

Thankfully, the unit rise combine with the margins decline manage to keep EPS flat. But the balance is very fragile. I am afraid we will see significant EPS decline this quater. There will be YoY unit declines, but margins should improved a bit since its been a while since products rollout. We will see.

 

IF Apple can keep its EPS this quater and manage to launch new products in the next, we will be out of the woods for a few months.


Edited by herbapou - 5/27/13 at 7:10am
post #16 of 43
Quote:
Originally Posted by EricTheHalfBee View Post

I wonder what Apple thinks about this. Since Foxconn makes devices they would have a head start on other accessory makers (think cases, for example).

I can't see Apple allowing Foxconn to abuse their position to bring products to market quicker (or even on the same day Apple releases a new device).

 

 

imo, I am hoping Foxconn doesnt turn into Samsung #2 and start rolling out there own products...

post #17 of 43


Foxconn supplies very few Macbooks... and the article specifically states iPads and iPhones... which is what I was talking about as well.

 

It sounds like you are saying, but haven't said specifically yet, that the 5S will be announced in June.

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post #18 of 43

If there is any truth to this, they are the new Samsung! They start by assembling for Apple then steal their technologies and start making competing devices. It's a good thing Apple is spreading out its supply chain and manufacturing facilities. Apple should use the $100+ billion they have over there to start building their own component manufacturing and assembly plants. China and Korea have shown at every turn they are completely untrustworthy (crooks). Wake up Apple!

post #19 of 43
Quote:
Originally Posted by island hermit View Post


So you're saying that Apple is going to release something within the next month?

 

 

Its going to release new macs for starters. But I am hoping for a surprise on the hardware side. The Apple stock needs it badly.

post #20 of 43
Quote:
Originally Posted by herbapou View Post

 

 

Its going to release new macs for starters. But I am hoping for a surprise on the hardware side. Apple needs it badly.


I was trying to stay on point... (iPad and iPhone)

 

I keep thinking that Apple is going to announce something early... but I also thought it was going to announce something by the end of March... so, yes, I too think Apple needs it badly.


Edited by island hermit - 5/27/13 at 7:25am
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post #21 of 43
Originally Posted by island hermit View Post
Do they normally announce products at WWDC?

 

I thought Apple was only releasing in the fall?

 

If you had never heard of Apple Computer Inc. before last October, you would think that.

 

But that's not the case with you. So why would you even SAY THIS?!

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post #22 of 43
Quote:
Originally Posted by KDarling View Post

 

The article didn't say "falling demand".   It talked about falling profits, which is not always the same thing.  The iPad mini seems to be in demand, yet it makes less profit than the original iPad.

 

That said, Hon Hai (Foxconn's parent) has had falling profit margins during the past half decade, and it's true  that analysts often tie their fate together with Apple's.   E.g. in charts like this one:

 

 

Although, look at the HonHai trend downward just before the "IPhone debuts" line.  It sure looks like Apple caused HonHai profits to level out for a while.

this is a key point.

 

Apple and most large 'producers' (customers) of Foxconn product often put the 'big'  incentives to take on the risk of the new products (we will pay you more to build factories, hire people, build out your logistics to handle our supply chain), and once in place, and sales explodes, the 'front end risk' component is gone, so Apple is not paying for piece work, and now has the 'hook' in them for future negotiations ('hey, we plan on doubling production... we'd like you to share the risk this time... we'll pay 50% up front for your expansion, instead of 100%, and you get the rest out of per piece revenue...."), which then drives Foxconn to drive workers harder to make more pieces per employee time unit... etc.

 

Then Apple comes in and says you need to treat workers well, or better quality or what not... and if Foxconn says, 'pay us more,'  Apple says, we'll think about it, and the next day there is a 'leak' that Pegatron is being wooed into expanding for a 'major new mobile device customer.'   Foxconn then comes back and builds a plant in Brazil or Detroit or whatever....

 

====

In the long run Foxconn making their own or white labeled 'smart phones' is not so much of a problem than when you saw ASUS do that with Dell.  Apple 'designs' the entire process and has not 'outsourced' the assembly line or construction methods or integration of parts, or supplier relations to Foxconn.  Apple is just using Foxconn as a supplier of labor and shop floor, which means they may know how to build them quickly, but not how to design them.  And Apple unlike Dell and the other PC vendors is turning over designs much faster than PCs of the 2000s

post #23 of 43
Quote:
Originally Posted by Tallest Skil View Post

 

If you had never heard of Apple Computer Inc. before last October, you would think that.

 

But that's not the case with you. So why would you even SAY THIS?!


Why would I even say what?

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post #24 of 43
Quote:
Originally Posted by island hermit View Post


Foxconn supplies very few Macbooks... and the article specifically states iPads and iPhones... which is what I was talking about as well.

 

It sounds like you are saying, but haven't said specifically yet, that the 5S will be announced in June.

Part true.......rumor is all we have to go by. But the rumor is announcements for products in the links i gave you.

Including IP5s and refresh of the Mac line with he Haswell processor/chipsets and redesigned iOS7

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post #25 of 43
Quote:
Originally Posted by geekdad View Post

Part true.......rumor is all we have to go by. But the rumor is announcements for products in the links i gave you.

Including IP5s and refresh of the Mac line with he Haswell processor/chipsets and redesigned iOS7


I've thought for a few months now that there would be an iPhone announcement of some sort in June... but then I was told by quite a few others that Apple announces iPhones in the fall.

 

So I thought it funny that you were indicating a June announcement and nobody said anything.

 

... and, to follow what you said... it says right in the article that Apple is expected to announce the new Macbooks at WWDC, that much we know. So I just assumed [... and of course we all know about assuming 1tongue.gif ] that it would be understood that I was talking about the real gist of the article which is basically that Foxconn is diversifying into "iPad" ad "iPhone" accessories to increase its bottom line "because" of falling profits at Apple (the article's words, not mine)... [and therefore indicating that I was talking about iPhone and iPad announcements at WWDC (I should have made that all one word)].


Edited by island hermit - 5/27/13 at 8:45am
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post #26 of 43
Quote:
Originally Posted by island hermit View Post


I've thought for a few months now that there would be an iPhone announcement of some sort in June... but then I was told by quite a few others that Apple announces iPhones in the fall.

 

So I thought it funny that you were indicating a June announcement and nobody said anything.

lol.....yeah there is a lot of misinformation sometimes. Part of the problem is how secretive Apple is about product announcements/releases. They no doubt have valid reasons for being that way. But it adds to the endless rumors and fabrication of some analyst predicting new Apple products.

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post #27 of 43

This entire theory is based on an unproven estimate that Apple is 50% of Foxconn's business. So AT BEST, Apple is not 50% of Foxconn's business. Why wouldn't a decline in that Other 50% affect Foxconn equally as much?

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post #28 of 43
Of course revenue is down but net profit is up.
They aren't producing as many new iPhones and iPads because they are gearing up the manufacture of the next version.
They have less product currently going out so they don't have to employ as many people.
This happens to some extent on every product refresh however, apple used to stagger the releases so it wasn't as obvious.
If you do it with all the products, what do you think will happen.
post #29 of 43
Quote:
Originally Posted by TheOtherGeoff View Post

this is a key point.

Apple and most large 'producers' (customers) of Foxconn product often put the 'big'  incentives to take on the risk of the new products (we will pay you more to build factories, hire people, build out your logistics to handle our supply chain), and once in place, and sales explodes, the 'front end risk' component is gone, so Apple is not paying for piece work, and now has the 'hook' in them for future negotiations ('hey, we plan on doubling production... we'd like you to share the risk this time... we'll pay 50% up front for your expansion, instead of 100%, and you get the rest out of per piece revenue...."), which then drives Foxconn to drive workers harder to make more pieces per employee time unit... etc.

Then Apple comes in and says you need to treat workers well, or better quality or what not... and if Foxconn says, 'pay us more,'  Apple says, we'll think about it, and the next day there is a 'leak' that Pegatron is being wooed into expanding for a 'major new mobile device customer.'   Foxconn then comes back and builds a plant in Brazil or Detroit or whatever....

You could, of course, flip that around. Businesses exist to earn a profit. The profit comes with some risk. Just like your personal investments, the greater the risk, the greater the reward. In this case, Apple (and possibly others, though I don't know) has taken much of the risk away from Foxconn. No upfront capital cost - Apple pays for expansion. Apple pays for training the employees. Apple has reportedly paid for the salary increases to employees. Apple has provided long term stability and growth. It's not surprising that the reward is lower when the risk is reduced that much.

It's not a business plan that I'd want to go for, but some people would.
Quote:
Originally Posted by TheOtherGeoff View Post

====
In the long run Foxconn making their own or white labeled 'smart phones' is not so much of a problem than when you saw ASUS do that with Dell.  Apple 'designs' the entire process and has not 'outsourced' the assembly line or construction methods or integration of parts, or supplier relations to Foxconn.  Apple is just using Foxconn as a supplier of labor and shop floor, which means they may know how to build them quickly, but not how to design them.  And Apple unlike Dell and the other PC vendors is turning over designs much faster than PCs of the 2000s

Foxconn making their own smart phones would be a losing proposition. First, they're relying far too much on Apple - and Apple would do everything they could to bring that relationship to an end as quickly as other suppliers could be lined up. Second, Foxconn could offer nothing to consumers that a hundred existing cheap suppliers couldn't provide. Their only hope would be to make a low end smartphone (more like a feature phone with a few smart capabilities) and try to undercut the competition. But that's a losing game overall. Even today, no one but Samsung and Apple are making significant profits in cell phones and jumping into that market to offer a low end product would only make it worse. It's not like PCs. PCs in the 80s and 90s were mere assembly operations. You buy motherboards, cases, etc and put them together. Cell phones require some design expertise - which Foxconn does not have.
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post #30 of 43
Quote:
Originally Posted by herbapou View Post


Agreed that would be a mistake.

imo, I am hoping Foxconn doesnt turn into Samsung #2 and start rolling out there own products...
post #31 of 43
Quote:
Originally Posted by Rogifan View Post

I hate when AI runs with the meme that everything an Apple supplier does or is rumored to be doing is because of falling demand from Apple products. 1rolleyes.gif

But it's true. Demand has fallen this quarter because the iPad released early.

AND because Apple is moving to diversify production.

The real meme is that the fall is due to fewer product sales because folks are buying something else. Like the new Samsung whatever, and leaving Apple

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post #32 of 43
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Originally Posted by jragosta View Post

Foxconn making their own smart phones would be a losing proposition. First, they're relying far too much on Apple - and Apple would do everything they could to bring that relationship to an end as quickly as other suppliers could be lined up.

You mean like they told Foxconn to ditch their other 70 or so clients. Oh wait, no they didn't.

Apple is more likely to ditch Foxconn over the bad press with the suicides (at have rarely to never been proven to be Apple workers) or because the US offers them some awesome tax deal to being production home than who else they are doing work for

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post #33 of 43
Quote:
Originally Posted by island hermit View Post


So you're saying that Apple is going to release something within the next month?

Who knows, but if folks believe rumors they won't buy. And there are blogs pushing that rumor

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post #34 of 43
Quote:
Originally Posted by island hermit View Post


Do they normally announce products at WWDC?

I thought Apple was only releasing in the fall? Why would it be slowing down already for a product releases in the fall?

The whole everything in the fall is a possible false interpretation of what Cook said.

As for releasing hardware at WWDC, they might, they might not. It's Apple so you can't trust them to do anything. If they don't want to talk hardware and nothing in the betas will leak details they won't talk.

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post #35 of 43
Quote:
Originally Posted by thinkman@chartermi.net View Post

If there is any truth to this, they are the new Samsung! They start by assembling for Apple then steal their technologies and start making competing devices.

And get sued out if existence. Having direct and proven access to IP raises the bar in proving intention to copy and with that statutory damages. Having a contract that prohibits revealing such information also raises the bar. And you can bet that contract is in place already given that Foxconn has like 70-75 major clients.

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post #36 of 43
Quote:
Originally Posted by herbapou View Post


Its going to release new macs for starters. But I am hoping for a surprise on the hardware side. The Apple stock needs it badly.

No what Apple stock needs badly is for analysts and bloggers to Sierra Tango Foxtrot Uniform. It's the talk of delays, insane predictions etc that killed the stock value despite breaking sales records and such

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post #37 of 43
Quote:
Originally Posted by herbapou View Post

 

 

imo, I am hoping Foxconn doesnt turn into Samsung #2 and start rolling out there own products...


I knew someone would rehash this. Samsung actually existed in those markets prior to Apple. No one doubted they would continue to produce phones. Hon Hai doesn't exist there.

post #38 of 43
Quote:
Originally Posted by jragosta View Post

Foxconn making their own smart phones would be a losing proposition. First, they're relying far too much on Apple - and Apple would do everything they could to bring that relationship to an end as quickly as other suppliers could be lined up. Second, Foxconn could offer nothing to consumers that a hundred existing cheap suppliers couldn't provide. Their only hope would be to make a low end smartphone (more like a feature phone with a few smart capabilities) and try to undercut the competition. But that's a losing game overall. Even today, no one but Samsung and Apple are making significant profits in cell phones and jumping into that market to offer a low end product would only make it worse. It's not like PCs. PCs in the 80s and 90s were mere assembly operations. You buy motherboards, cases, etc and put them together. Cell phones require some design expertise - which Foxconn does not have.

we are in agreement.

 

(although the WinTel PCs are still a 'slap together assembly things)  The Asus/Dell Foxconn/Apple comparison falls on the fact that the PCs are a race to the bottom economy (save Apple), and Smart Phones are 'continuous innovation' economy.   Foxconn can't use what they've learned, as the product isn't about slapping faster processors in a box cheaper than your competition... it's all about the next set of human interface features, coupled with amazing software, coupled with amazing Internet based services.

post #39 of 43
Quote:
Originally Posted by charlituna View Post

You mean like they told Foxconn to ditch their other 70 or so clients. Oh wait, no they didn't.

Apple is more likely to ditch Foxconn over the bad press with the suicides (at have rarely to never been proven to be Apple workers) or because the US offers them some awesome tax deal to being production home than who else they are doing work for

That's not even close to what I said.

Someone suggested that Foxconn might start making their own line of smart phones. If they did, I believe Apple would dump them.

I really don't think Apple cares about who else they assemble products for, but they don't want a supplier who is in direct competition.
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post #40 of 43
Quote:
Originally Posted by thinkman@chartermi.net View Post

If there is any truth to this, they are the new Samsung! They start by assembling for Apple then steal their technologies and start making competing devices.

 

Of course, the huge difference is that Samsung never did any assembling for Apple.  Or build cases.  Or see UI stuff before it went on sale.  Or know what all the components would be.  Foxconn does.

 

Quote:
It's a good thing Apple is spreading out its supply chain and manufacturing facilities. Apple should use the $100+ billion they have over there to start building their own component manufacturing and assembly plants.

 

Perhaps, although that would open up all sorts of cans of worms about employment, taxes, publicity over treatment, etc.

 

Heck, it could even affect royalties. For example, supposedly Apple only pays FRAND royalties on the price they pay Foxconn to build and package each unit... about $240 for an iPhone... instead of on the actual wholesale price like other self-manufacturers do.  If they owned the factory, that kind of royalty bypass might no longer be available.

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