Foxconn Receives Govt Subsidy to Minimize Layoffs Amid Reports of Falling iPhone Demand
We have been hearing news coming from Asia, suggesting that Apple is scaling back its production of iPhone 6s and 6s Plus due to crushing sales in the past couple of months. Following a report by Japan’s Nikkei, the Wall Street Journal now reports that Apple’s biggest partners in China are receiving subsidies to minimize layoffs on their plants.
Foxconn layoffs could be related to falling iPhone sales:
The Wall Street Journal, in a report today, suggests that Foxconn has been laying off workers and has received a $12 million subsidy from the Chinese government to minimize unemployment. This subsidy is reportedly for the company’s Zhengzhou plant mostly geared toward manufacturing iPhone models. Foxconn denies to confirm if its layoffs are related to iPhone orders and claims that it has received the subsidy “in recognition of our company’s contributions to maintaining our significant work force at our Zhengzhou facility throughout that year.” However, since “Zhengzhou is the largest base for iPhone manufacturing,” this reflects that the layoffs must be related to iPhone demands. Due to falling sales in the last two months, Apple has also reduced its order forecasts for iPhone component makers.
Chinese iPhone factories had some idle capacity in the final two months of the calendar year, when they would typically be racing to chongliang, or “rush quantity,” for Apple, in factory-speak. Some workers at Foxconn’s Zhengzhou factory in inland China were let go on early holiday last month, one of the people involved in the supply said, although the typical new-year holiday season doesn’t start until February.
While Foxconn is only one of 134 companies to receive a subsidy in Zhengzhou, the iPhone manufacturer received more than half of the total subsidy given to all the companies in the region to reduce unemployment. Both the Foxconn and Pegatron, two of the biggest suppliers of iPhone components, have seen their share prices fall amid this speculation. Following the previously mentioned report by Nikkei, Apple shares have also fallen as the newspaper claimed that “lackluster sales” were the reason behind iPhone production cuts.
However, the same report and other industry analysts suggest that after the holiday season, a drop in iPhone demand is usual and that the production could be ramped up again by the end of March. With a 4-inch iPhone 6c expected in March and a flagship iPhone 7 with more than just a few noticeable features later in the year, it’s hard to tell if Apple is actually facing some real trouble based on these supplier reports.