Apple Inc. (NASDAQ:AAPL)’s supplier, Taiwan’s Foxconn Technology Group Ltd, is planning to cut its massive workforce having grappled with declining revenue growth in the recent past at the back of rising wages in China. The company is considered the largest manufacturer of contract electronics in the world employing nearly 1.3 million people during peak production times.
Massive Wage Bill
Taiwan Foxconn through its spokesman, Louis Woo has not specified the timeframe for the imminent job cuts and what kind of effects they will have on production as well as on Apple Inc. (NASDAQ:AAPL) in terms of supply. Labor costs have reportedly doubled from 2010; time when the company was grappling with increased media scrutiny following a wave of worker’s suicides.
The company saw its revenue tumble by 1.3% in 2013 but showed signs of recovery in 2014 growing by 6.5% amidst double-digit increases between 2003 and 2012. An explosion in popularity for smartphones and tablets between 2003 and 2012 saw the company record all-time high revenue returns at the back of contract deals with the likes of Apple Inc. (NASDAQ:AAPL).
Declining Smartphones Sales
A point of concern for Taiwan has to do with a study by research firm IDC that shows smartphone sales could half from 26% in 2014 this year with the PC market also expected to shrink by 3%. Smartphone prices are also poised to shrink something that should have a ripple effect on the company’s total earnings.
Automation remains key for Taiwan Foxconn in the process of reducing operation costs attributed to big wage bills. Woo has affirmed that the company is in the process of deploying robots that will be used to carry out mundane tasks, currently done by workers. Woo also affirmed that a previous target of 1 million robots by the company’s chairman Terry Gou was a generic concept rather than a firm undertaking.
