TAIPEI -- Lackluster demand for iPhones is taking its toll on jobs at key Apple suppliers, with many accelerating cost-cutting plans to prepare for an expected downturn in 2019.
Foxconn, the biggest iPhone assembler, aims to cut up to 100,000 personnel by the end of this year, as it steels itself for a tougher 12 months ahead, a source familiar with the plan told the Nikkei Asian Review.
Another key supplier, Career Technology, which provides Apple's printed circuit boards, has already trimmed hundreds of contractors at its facility in Taiwan out of a total 8,483 employees in response to sluggish demand.
Foxconn -- formally traded as Hon Hai Precision Industry -- reviews head count annually. However, it is bringing forward the job cuts as next year it expects to have to deal with the combined effects of a slowdown and increased price pressure from Apple, sources said. The reduction will be "more aggressive" this time compared with previous years, two sources confirmed.
One person briefed on the cost reduction plan said he expects Apple and other customers to call for price cuts of 10% to 20%. While this is a regular demand from the iPhone maker, it will be harder to achieve when orders are not rising strongly, he said. Cutting 100,000 jobs would not be "that critical for a group that boasts more than one million staff."
"Most executives agree that there will be no growth in Apple's orders for 2019, while the whole group tends to be more conservative about the overall electronic outlook next year," the person added.
Foxconn confirmed in a statement to Nikkei that it conducts annual reviews on resource allocations and that those discussions are designed to help the manufacturing giant’s transformation to an industrial internet platform.
“These annual budget exercises are focused solely on restructuring underperforming business units and invested companies, ensuring optimum allocation of general and administrative expenses,” Foxconn said.
The company did not address Nikkei’s question on whether it will cut up to 100,000 jobs to meet its goals. But it said the “budget exercises will have no impact on our group’s resource allocation for research and development, new product development, and investment into new ventures.”
The plan to cut jobs and reduce costs by 20 billion yuan ($2.88 billion) in 2019 was first reported by Bloomberg on Nov. 21.
Company Chairman Terry Gou is well-known for eliminating costs and his longer-term goal is to reduce head count in a shift toward automation. The honorary chairman of Foxconn's display panel arm Innolux, Tuan Hsin-chien, earlier this year said his unit aimed to replace 10,000 employees with robotics.
"We will reduce our total workforce to less than 50,000 people by the end of this year, from some 60,000 staff at the end of 2017," Tuan told reporters in February.
The number of planned redundancies equates to around 10% of the group's total head count. This would stretch across the board from production to engineers and support staff in human resources, finance, safety, maintenance, and other segments, Nikkei Asian Review has learned.
At the end of 2017, Foxconn, the world's largest electronics contract manufacturer, had more than 1.1 million employees worldwide. This includes subsidiaries, such as FIH Mobile, which assembles non-Apple smartphones, connector and automotive component supplier FIT Hon Teng, display unit Innolux and Japan-based Sharp.
Career Technology, a smaller rival to Japan's Murata Manufacturing, is beginning to let go of temporary workers in preparation for a difficult 2019. "The demand in the peak season this year is softer than in the past," a Career spokesperson told the Nikkei Asian Review. "We are not sure about the outlook going forward in the next quarter, as there are too many uncertainties such as the U.S.-China trade war," he said.
Negotiations between Career and temporary workers are ongoing, a company spokesperson said, without specifying the numbers of contractors involved. Career's layoff plan was first reported by the Chinese-language newspaper Apple Daily.
Foxconn and Career's cutbacks come as shares in Apple, their biggest client, tumble on concerns over the forthcoming downturn. They have retreated more than 20% from a record high in July. Investors in the California-based company were alarmed by the group's unexpected decision to stop disclosing iPhone shipments from the next quarter, a move that sparked concern over demand.
Foxconn's aggressive head count review not only signals a dimmed outlook for iPhones, but also hints at an impending slump for the global electronics industry.
Led by a tech sell-off, the Dow Jones Industrial Average has dropped more than 500 points to erase its gains in 2018, and the S & P 500 and the Nasdaq Composite also face headwinds.
On the other hand, another key iPhone assembler Pegatron has not yet held its annual review meeting to set the group's goal for 2019, according to a source familiar with the company's plan. It is not unusual for Pegatron to adjust the workforce in line with orders, the person said. Nevertheless, Pegatron has never before initiated a large job reduction plan, even when faced with a major downturn, they added.
Pegatron CEO S.J. Liao earlier this month told investors that the company was anxious over the trade war potentially slowing down global growth next year and dampening consumer confidence.
The Nikkei Asian Review earlier this month first reported that Apple told Foxconn and Pegatron to cancel extra production capacity for the most cost-effective iPhone XR due to sluggish demand. At least four Apple suppliers -- Lumentum, Japan Display Inc., Qorvo and AMS -- cut their revenue forecast following the Nikkei report.
Nikkei staff writer Kensaku Ihara contributed to the report.