Foxconn plans $2.9 billion cost cutting exercise, iPhone unit impacted

The iPhone manufacturer may include layoffs in next year's restructuring efforts.

Foxconn is reportedly planning to cut operational costs by 20 billion yuan ($2.9 billion) following a "very difficult and competitive year."

According to an internal memo seen by Bloomberg, roughly 10 percent of non-technical staff will be eliminated from the payroll in 2019.

However, the memo also laid out the reduction of expenses in the iPhone manufacturing sector of six billion yuan, which is roughly a third of Foxconn's current expenditure in the business.

Foxconn is Apple's largest and most well-known assembler and iPhone manufacturer. The need to cut assembly costs comes at the same time as the sales outlook for Apple iPhones waver, with a lack of demand believed to be at fault.

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A recent report suggested that phone component suppliers have been taken aback by the iPad and iPhone maker cutting production orders for the iPhone XS, iPhone XS Max, and iPhone XR.

It is estimated that Apple may have cut production orders for the iPhone XR by up to a third. Demand was originally expected to require the manufacture of 70 million units.

Maintaining capacity to fill vast orders from the largest technology companies in the world requires investment in tools, employees, and facilities. When demand weakens, however, this not only impacts the profit margin of device vendors themselves but also trickles down the supply chain.

Other iPhone component manufacturers including Japan Display and Qorvo have cut profit estimates in recent months, citing order reductions from an unnamed, large customer.

As Foxconn's memo specifically names the iPhone unit as an area which requires a reduction in expenses over the next year, it is possible that the reported slow-down in demand -- potentially due to the stiff price tags of high-end models and the competitive mobile device landscape -- has also cut into Foxconn's predictions of future profit.

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Apple appears to believe the days of clamor over iPhones may now be over, too, as the company recently said quarterly reports will no longer provide unit sales data for iPhones, iPads, and Macs.

A recent report from Nikkei suggests that Apple has also told Foxconn and Pegatron, another component supplier, to cancel plans to increase iPhone XR production capacity.

The Taiwanese manufacturer neither confirmed or denied the report when approached by ZDNet; instead, a Foxconn Technology Group spokesperson told us that "we regularly review our global operations to ensure that we are always applying our resources in a way that supports our operations, our customers' demands and critical research and development priorities while also meeting the needs of all areas of our company."

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"These reviews enable us to meet our long-term responsibilities and commitments to our customers, our employees and business partners, and to our shareholders," the spokesperson added. "The review being carried out by our team this year is no different than similar exercises carried out in past years to ensure that we enter into each new year with teams and budgets that are aligned with the current and anticipated needs of our customers, our global operations and the market and economic challenges of the next year or two."

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