Apple supplier Foxconn seen cutting costs to cope with Chinese economy, slowing smartphone market

Posted:
in General Discussion edited August 2015
Apple's primary assembly partner, Hon Hai -- better known as Foxconn -- beat gross profit estimates for the June quarter, but in what may be a sign that the manufacturer cut costs to cope with weaker demand, a report said on Friday.




The company's margin for the quarter was 7.2 percent, higher than an analyst consensus of 7 percent, Bloomberg noted. Net income was also slightly above expectations, up 27 percent to NT$25.7 billion, or $798 million. Analyst predictions averaged NT$25.2 billion (almost $783 milllion).

Both the Chinese economy and the overall smartphone market have been slowing down, however, making it likely that Hon Hai/Foxconn used cutbacks to keep profits high.

The company pulls in roughly half of its revenue from Apple, mostly through iPhone production. Although Apple set new internal records for the quarter, the 47.5 million iPhones it sold were below an average forecast of 48.8 million. Some analysts had been anticipating as much as 50 million.

Foxconn and Pegatron are believed to be resuming their roles as Apple's main manufacturers for the next round of iPhones, which could be announced as soon as Sept. 9. Apple is commonly expected to reveal an iPhone 6s and a 6s Plus, but might also surprise with an iPhone 6c, which has been rumored as having a smaller 4-inch screen.

Comments

  • Reply 1 of 9
    jungmarkjungmark Posts: 6,591member
    Apple sold what it predicted to sell. Analysts were wrong. They should explain why they overestimated.
  • Reply 2 of 9



    Nice numbers, but something doesn't match:

    Let's say you are right with those 5.2B.

    Foxconn accounts for assembly costs for Apple. On iphones, these are said to be about 5%.

    So 5.2B/0.05=104B in iphone value produced by foxcoon per year.

    Cost of iphones for Apple is about $200: 104,000,000,000 / 200= Does it Foxconn made 520 million iphones last year?

     

    We need more precise figures to conclude the impact of yuan. Anyway, I agree with you that the impact for Apple will be minimal. It's simply a matter of the supply/demand curve behavior, and inelasticity of that demand. Which is the case of iphone in China. Apple may rise prices with little or no impact in sales numbers.

  • Reply 3 of 9
    One potential tweak to the math:
    50% x $11.4 = $5.7 (not 5.4)

    Correct me if I'm misinterpreting something. Other than that tweak, I agree with your narrative.
  • Reply 4 of 9
    tzeshantzeshan Posts: 1,847member
    Quote:

    Originally Posted by sog35 View Post

     

     

    Sounds like the tech media is spewing BS numbers again.

     

    Foxconns annual revenue is over $100 billion

    http://www.forbes.com/sites/ralphjennings/2014/08/27/foxconn-falls-out-on-slowing-growth/

     

    So Apple pays them $50 billion a year?  Bullshit.

     

    This is media spin again.  Trying to make Apple look bad by saying foxconn is having shrinking revenue so it means iPhone revenue will be down (since Apple is 50% of their revenue)




    The Street is worrying about slowdown or negative growth not Chinese not buying iPhone at all.  The Yuan devaluation is an after effect.  Chinese economy is slowing down fast forcing devaluation to avoid recession.  The slowdown means some Chinese are getting richer less thus forcing them to reconsider purchasing an iPhone.  Economy is not a simple deductive reasoning.  It is more like a chain reaction.  

  • Reply 5 of 9
    foggyhillfoggyhill Posts: 4,767member
    Quote:

    Originally Posted by mieswall View Post

     



    Nice numbers, but something doesn't match:

    Let's say you are right with those 5.2B.

    Foxconn accounts for assembly costs for Apple. On iphones, these are said to be about 5%.

    So 5.2B/0.05=104B in iphone value produced by foxcoon per year.

    Cost of iphones for Apple is about $200: 104,000,000,000 / 200= Does it Foxconn made 520 million iphones last year?

     

    We need more precise figures to conclude the impact of yuan. Anyway, I agree with you that the impact for Apple will be minimal. It's simply a matter of the supply/demand curve behavior, and inelasticity of that demand. Which is the case of iphone in China. Apple may rise prices with little or no impact in sales numbers.


     

    Cost of assembly is just a small part of the BOM, most of it doesn'T go to FOXCON. That explains things.

  • Reply 6 of 9
    cnocbuicnocbui Posts: 3,613member

    Quote:
    Originally Posted by sog35 View Post



    ...

     

    On a side note Mercedez Benz sales is China was up 40% in the June quarter. Yet idiots on Wall Street want you to believe people won't buy iPhones if it cost $8 more.




    You really like hyping Apple's prospects in China by trying to make it seem like there is more widespread personal wealth than there is.

     

    Yes, Mercedes increased sales but they were up 34%, not 40%.  Their sales were up 71% in Korea and 54% in Japan, in comparrison.  That 34% increase was only 23,000 cars.

     

    Quote:

    Originally Posted by sog35 View Post

     

     

    LOL.  talk about overreaction BS by Wall STreet.

     

    Last year Wall St estimated China economy to grow 7.3%

    Right now its at 7.1%.

     

    China is not slowing down.  It is still growing massively.


     

    China is not growing at 7.1%  Only an idiot would believe the official figures.

     

    Quote:

     

    China’s first-quarter GDP data has fueled fresh skepticism about the reliability of the nation’s official statistics, with some experts saying that the actual growth could be much worse than the officially reported figure of 7 percent.

    Citibank, in a recent report, said it believes that actual quarterly growth could be below 6 percent year to year, depending on the factors weighed, the Wall Street Journal reported.

    Other research firms put their numbers far lower, with Capital Economics pegging the growth at 4.9 percent and the Conference Board’s China Center at 4 percent, the report noted


    http://www.ejinsight.com/20150427-china-gdp-fuels-fresh-doubts-about-reliability-of-official-data/

     

    And that was back in April.  More currently:

     

    Quote:

    China surprises economists with GDP rise of 7%




    Many had predicted a lower rate of growth and some have raised doubts over reliability of official numbers





    ...

    However, there were immediate doubts over the growth figure’s reliability with the announcement sparking renewed debate over the trustworthiness of Beijing’s statistics.

     

    The fact that the figure was exactly in line with the Communist party’s 2015 full-year growth target “raises suspicions,” said Yang. “There is the issue of credibility, certainly.” 


    http://www.theguardian.com/business/2015/jul/15/china-surprises-economists-with-gdp-rise-of-7

     

    China's economy is not growing massively, it's all but stalled.

  • Reply 7 of 9
    adamcadamc Posts: 562member
    " however, making it likely that Hon Hai/Foxconn used cutbacks to keep profits high."

    As usual AI is guessing, er, speculating like all the financial analysts perhaps AI will be joining their rank soon.

    hat a piece of non news, desperate times requires desperate action as Tom Cruise said in Rogue Nation.
  • Reply 8 of 9
    tenlytenly Posts: 707member
    [quote]Apple's primary assembly partner...beat gross profit estimates for the June quarter[/quote]

    [quote]The company's margin for the quarter was 7.2 percent, higher than an analyst consensus of 7 percent[/quote]

    [quote]Net income was also slightly above expectations, up 27 percent to NT$25.7 billion, or $798 million.[/quote]

    [quote]Apple set new internal records for the quarter, the 47.5 million iPhones it sold were below an average forecast of 48.8 million.[/quote]

    [quote]Analyst predictions averaged...[/quote]

    [quote]Both the Chinese economy and the overall smartphone market have been slowing down[/quote]

    The markers are most certainly not slowing down. The growth of the markets may be slowing down, but if the markets themselves were slowing down that would mean fewer units sold this year over last year.

    Funnier though - and something I'll never understand is why a company is considered to have "missed" if their sales, margin, revenue, profit, etc fall short of some made-up number by someone who calls themselves an analyst? These people have no ties to the actual companies in question and their own education and competency is suspect in most cases - yet a company is punished or rewarded by getting close to a number one of these morons pulls out of their asses!

    Why do companies even bother releasing guidance? The companies have someone whose job it is to figure out how many units are likely to be sold next quarter. They have mountains of confidential data to base their estimates on and they have knowledge of current and future promotions as well as the likelihood of closing new business which may be in-progress and countless other factors that help them come up with a pretty accurate number. So they release this number - and then the bozo analysts (that don't have a fraction of the data available to the company, and usually have NO real data at all) arrogantly decide that they can come up with a more accurate number - so they add 3% or 5% or 7% or a bajillion units to the guidance prepared by the company and then they release THAT number to the world. From that point on - that markets treat THAT artificial, made-up number as the number to beat - and then, when a company falls short of that number - the company gets punished by the markets!!!??? Even if the company's own released guidance is exactly correct ??? WTF ??? I don't get it....I'll never get it... It makes no sense at all....

    What do you think FoxConn does when they are staffing up for the coming quarter? Do they prepare to build the number of decices that Apple thinks they will sell? Or do they prepare to build the number of decvces that the analysts predict will be sold?

    Ugh. In any case. I think this article is worse than useless. The numbers reported in it "may" be accurate, but I think the conclusions drawn from those numbers is way off base!!!
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