Attempt to link Foxconn's slowed growth to Apple viewed as questionable theory

Posted:
in AAPL Investors edited January 2014
A suggestion that slow growth at manufacturer Foxconn could be a bad sign for Apple has been called out by one financial institution, which instead asserts that the connection between the two companies is limited.



Analyst Yair Reiner with Oppenheimer & Co. issued a note on Wednesday in reaction to an analysis released earlier in the day by a separate firm. That previous take downgraded AAPL stock over concerns that a deceleration in manufacturing at overseas device assembler Foxconn could be a bad sign for Apple.



Reiner said the conclusion reached by analyst Alex Gauna of JMP Securities might appear to carry weight at first, because Foxconn and Apple both accelerated in growth together. But with a closer look, Reiner feels the connection between Foxconn and Apple is not supported.



"Apple's contribution to Han Hai (which uses the trade name Foxconn) is limited," Reiner wrote. "The correlation between Apple and Hon Hai's revenue therefore appears to be a product of coincidence more than causality."



To support his theory, Reiner noted that Apple's contribution to Foxconn's $93.4 billion in sales in 2010 was about $20 billion, or just 21 percent of the company's total. Because Apple accounts for a "relatively modest portion" of Foxconn's revenue, the Cupertino, Calif., company is not seen as directly tied to Foxconn's momentum.



He also noted that assemblers like Foxconn are typically paid on a cost-plus basis, where the assembler purchases most of the components that will be used to build the final device, like an iPhone or iPad. A company like Apple then pays reimbursement for the purchased components, plus a single-digit margin for assembly services.



Reiner estimates that about 65 percent of Apple's $30 billion in "cost of goods" in 2010 went to Foxconn, while the rest went to component companies selling directly to Apple. Foxconn does not disclose revenue contributions from its customers.



Gauna and JMP Securities gained a considerable amount of attention Wednesday with their decision to downgrade AAPL stock. With a consistently strong performance and sales consistently exceeding expectations, it is one of the most generally supported stocks on Wall Street.
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Comments

  • Reply 1 of 56
    What? I would call one customer bringing in 21% of your total revenue more than "relatively modest." Apple has to be their largest customer, unless Foxconn has like 5 total customers.
  • Reply 2 of 56
    jimdreamworxjimdreamworx Posts: 1,063member
    Third Friday of the month is coming up.



    Gotta start spreading 'em rumors for the sake of triggering options.
  • Reply 3 of 56
    Right on!
  • Reply 4 of 56
    The fact that other brands may have a decreased need of foxconn's resources, in fact FREES production capacity for Apple, something which comes in handy given the expected iPad2 boom.



    Oh well, the current dip will only make the upswing bigger. Unfortunately it isn't the guys who play it nicely who will be benefiting most.
  • Reply 5 of 56
    mrpogemrpoge Posts: 9member
    Quote:
    Originally Posted by JimDreamworx View Post


    Third Friday of the month is coming up.



    Gotta start spreading 'em rumors for the sake of triggering options.



    I think that's less of an issue now that weekly options are available. The monthly options expiration date isn't any more significant than any other Friday now (at least for AAPL).
  • Reply 6 of 56
    Twenty-one percent is a huge number relative to total income. When I buy groceries at the store it is a small percentage of income to them. If I were responsible for one fifth of the income of a store you can bet the owner would meet me at the door and have people collecting the items I want while I sat and had coffee with the owner.



    That doesn't mean that the income of Foxcon slowing equates to the income of Apple slowing.
  • Reply 7 of 56
    adonissmuadonissmu Posts: 1,772member
    I think this may be an attempt to lower apple stocks so they can pick up some cheap shares. However, the Japan situation may cause Apple some problems. Apple has a supply problem. If they can't figure out a way to get Ipads into people's hands fast enough I think people may go to Xoom and these other tabs. They should've made sure they shipped at least 5 million to US stores at the outset.
  • Reply 8 of 56
    bigdaddypbigdaddyp Posts: 811member
    Quote:
    Originally Posted by Freshmaker View Post


    What? I would call one customer bringing in 21% of your total revenue more than "relatively modest." Apple has to be their largest customer, unless Foxconn has like 5 total customers.



    I think this analyst point about Apple accounting for a "modest" 21 percent is not to downplay how much revenue that is for Fox Con. It' more about refuting the notion that a drop in Fox Con's revenue automatically means it is because of Apple.
  • Reply 9 of 56
    cgc0202cgc0202 Posts: 624member
    First Story:

    Deceleration in Foxconn manufacturing seen as a concern for Apple

    by Neil Hughes



    Same day (a separate article???)

    Attempt to link Foxconn's slowed growth to Apple viewed as questionable

    by Neil Hughes



    Maybe if he reads other analysts, he will also post them as separate articles. Even Jenna Wortham of NYT, who tend to simply borrow words and analysis from others woould take the time to consolidate related issues, and simply modify the original article. However, milking the same story into multiple articles is understandable if Apple Insider is paying its freelancer by the number of articles published without so much as editorial screening.



    But, it would not be surprising from Neil Hughes who simply regurgitates other articles from other sites:



    Up to 20% of original iPad buyers predicted to upgrade to Apple's iPad 2

    By Neil Hughes



    while another article also by (another Apple Insider))



    Apple attracts 70% new buyers with iPad 2 launch - survey




    without each article questioning the statistical sampling and thus validity of the analysis.



    Add Sam Oliver



    IDC: Apple's iPad took 83% share of tablets shipped in 2010



    and Apple Insider is the "epitome" of what would represent as online tech news.





    CGC
  • Reply 10 of 56
    Quote:
    Originally Posted by Smallwheels View Post


    Twenty-one percent is a huge number relative to total income. When I buy groceries at the store it is a small percentage of income to them. If I were responsible for one fifth of the income of a store you can bet the owner would meet me at the door and have people collecting the items I want while I sat and had coffee with the owner.



    That doesn't mean that the income of Foxcon slowing equates to the income of Apple slowing.



    Sure, it probably doesn't mean anything, but as you can see, investors believed the vague connection. Apple investors are scared to hold on to Apple shares because they don't trust the stock one bit. You look at it rationally, but Apple shareholders are skittish and scared of losing their money with Apple so they dump shares quickly. \
  • Reply 11 of 56
    xsuxsu Posts: 401member
    Quote:
    Originally Posted by Constable Odo View Post


    Sure, it probably doesn't mean anything, but as you can see, investors believed the vague connection. Apple investors are scared to hold on to Apple shares because they don't trust the stock one bit. You look at it rationally, but Apple shareholders are skittish and scared of losing their money with Apple so they dump shares quickly. \



    Probably because they bought at over 300, and there's a long way to fall if something goes wrong at apple.
  • Reply 12 of 56
    eideardeideard Posts: 351member
    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.
  • Reply 13 of 56
    I don't think anyone with half a brain would be so dumb as to buy MMI's tablet just because Apple is sold out. The reason they're sold out is because knowledgeable users KNOW that the iPad2 is superior and they'll wait for it.
  • Reply 14 of 56
    jeffdmjeffdm Posts: 12,946member
    Quote:
    Originally Posted by cgc0202 View Post


    Maybe if he reads other analysts, he will also post them as separate articles. Even Jenna Wortham of NYT, who tend to simply borrow words and analysis from others woould take the time to consolidate related issues, and simply modify the original article. However, milking the same story into multiple articles is understandable if Apple Insider is paying its freelancer by the number of articles published without so much as editorial screening.



    Normally I'd agree, but don't you think there is a chance that this second analysis was available only after the first story was posted? After all, about 7 hours passed between articles.
  • Reply 15 of 56
    mdriftmeyermdriftmeyer Posts: 7,142member
    This has been a great opportunity for large institutions to pay speculators to drive down stocks so they can come in and buy larger chunks.
  • Reply 16 of 56
    kyle172kyle172 Posts: 64member
    Ludacris!!!!
  • Reply 17 of 56
    maccherrymaccherry Posts: 924member
    Quote:
    Originally Posted by AdonisSMU View Post


    I think this may be an attempt to lower apple stocks so they can pick up some cheap shares. However, the Japan situation may cause Apple some problems. Apple has a supply problem. If they can't figure out a way to get Ipads into people's hands fast enough I think people may go to Xoom and these other tabs. They should've made sure they shipped at least 5 million to US stores at the outset.



    That is absolute BS!

    Nobody is going to head for a freaking Xoom tablet over and ipad 2. Sorry for sounding so pompous but that is how I feel.

    Moto doesn't have the ecosystem like Apple nor the customer service. Going into an Apple store is like entering a weekend jam session with the Beatles.
  • Reply 18 of 56
    cgc0202cgc0202 Posts: 624member
    Quote:
    Originally Posted by JeffDM View Post


    Normally I'd agree, but don't you think there is a chance that this second analysis was available only after the first story was posted? After all, about 7 hours passed between articles.



    More professional online tech blog sites, like the New York Times, would simply edit the original post, especially so it if was from the same writer. On the other hand, click counter sensitive sites, have a tendency to "milk" the same issue. This would not be surprising if it is from different writers.



    More important, since this is really a blog, and not really news because it is secondary if not tertiary material (from other sites), it would have been appropriate for the writer to consider the flaws of the original article. Such would have made the "second" article more worthy, but it should still have been consolidated, or the second placed as an update. Afterall, based from prior articles, it was not unusual for Apple Insider to edit article content, to correct glaring errors. This means that the writers or editors can modify already published articles.



    CGC
  • Reply 19 of 56
    That analyst got himself a PR 15 seconds of Fame! Some might even see him as a Truth Teller, Independent Thinker! Meanwhile analysts like that can't lose:



    They are "protecting" us... But those who will BUY on Sell Off's like today, they'll be Thanking Analysts like that guy, who, on half truths, if not lies, got his name into headlines, to re-enforce his own job security!



    Don't you remember, a week or so before iPad 2 Announcement, there were rumors of Apple problems with supplies etc... Yep, with Apple having a hard time keeping up with the Demand, such Supplies Issue, is not "Supplies" ( SURPRISE misspelled... borrowed from an old joke I can't remember... )



    In this article, I've found more support for the points in my post on a previous AI thread, http://bit.ly/gp7vLB "Foxconn - Stealing from Apple?! Ha ha ha!!!!



    "assemblers like Foxconn are typically paid on a cost-plus basis, where the assembler purchases most of the components that will be used to build the final device, like an iPhone or iPad. A company like Apple then pays reimbursement for the purchased components, plus a single-digit margin for assembly services"



    Thus, it'll be hard to steal from Apple...



    Also, not long ago I couldn't believe that AAPL went above $300! And today the Sky Is Falling, Bad Day at $326-330???



    I am going out for a walk!



    If you need more ammunition against Apple doubters, here is a great video:



    iPad 2 & The Future of Tablets! Mossberg, Carr, Charlie Rose! http://bit.ly/hBGbQQ LISTEN CLOSELY!!!! Forward that link...



    Go out for a walk! The Sky is NOT Falling!!!
  • Reply 20 of 56
    wigginwiggin Posts: 2,258member
    Quote:
    Originally Posted by mdriftmeyer View Post


    This has been a great opportunity for large institutions to pay speculators to drive down stocks so they can come in and buy larger chunks.



    Well, they achieved their purpose. The general market is down by about 2%, Apple is down 4%.
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