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"Notable" slowdown at Foxconn manufacturing concerns Apple (Updated)

A slowdown in Foxconn's manufacturing may have a negative impact on the future supply of Apple products. According to Alex Guana of JMP Securities, "Hon Hai's (Foxconn) growth decelerated from 84% (year over year) in the month of December to 37% in January and then again to 26% in February."

The reasons for this deceleration are not known, but the slowdown is concerning enough that JMP has downgraded its outlook on Apple from "Market Outperform" to "Market Perform." This unfavorable assessment is not based on the quality of Apple's products, but on Foxconn's ability to deliver an increasing number of Apple products in a timely manner.

For the past year, Apple has struggled to meet demand for its popular smartphone and tablet. Both the original iPad and the iPhone 4 were plagued by shortages that forced the Cupertino company to delay the international launch of the iPad and rollout the iPhone 4 slowly to new carriers worldwide.

Apple's recent earnings conference call confirmed iPhone 4 supplies are still constrained, and a slowdown by Foxconn may exacerbate this problem. It is worthy to note that this report does also consider the negative impact of the Japanese earthquake on the global supply of NAND flash and other electronics components. Until production levels in Japan can be restored, the next few months may be rough for Apple and its fans.

Update: Another analyst cited by AppleInsider refutes this negative conclusion put forth by Gauna. Analyst Yair Reiner of Oppenheimer & Co. points out that Apple accounts for only 20% of Hon Hai's total sales. The link between the two companies is so small that any slowdown in Foxconn's growth will have no effect on Apple. Reiner writes, "The correlation between Apple and Hon Hai's revenue therefore appears to be a product of coincidence more than causality."



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A slowdown in Foxconn's manufacturing may have a negative impact on the future supply of Apple products. According to Alex Guana of JMP...
 

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Fritz Laurel

Or, they could ... I dunno ... move their manufacturing to the US and give some Americans a job. It might cost them a little more, but Jesus Christ, they have $50B in cash.

March 17 2011 at 4:09 AM Report abuse rate up rate down Reply
Chris M

Apple can easily move production to the USA. They just need to build a combined production facility and prison.

Cheap labour. And prison slavery is a growth industry in the US so no shortage of workers.

March 17 2011 at 3:57 AM Report abuse rate up rate down Reply
nikster

Pure and unadulterated BS.

Now we're "worried" when a 1M+ employees manufacturer "only grows 26%". That's a joke, right?

The only logical explanation here is that somebody is trying to talk the stock down. Or maybe trying to get some sort of counter balance to the good AAPL news - and if this is all they can come up with, the most negative about Apple is that one of their prime suppliers which has over 1 Million employees grew 26% in January year-over-year - then I'd say buy now!

Last time I checked Apple itself wasn't even growing 26%, was it? For a company of Apple's size 26% would be a blowout year, no?

March 16 2011 at 10:51 PM Report abuse rate up rate down Reply
btblomberg

The "slow down" is not Apple, but likely the WIndows PCs and Netbooks they make for competitors. They built up production for Apple. The reality is that this reflects poorly on Foxconn's other customers, since Apple has always been trying to produce more product. The statement in the earning calls is always 'If we could have made more we would have sold more this last quarter." With Apple being one of the growing computer companies I am certain this should be the case for quite some time to come. The original analysis is by a analyst for JMP Securities who likely had a short on Apple or is buying up stock in the down turn. Unscrupulous pinheads who can't think to save their lives.

March 16 2011 at 8:37 PM Report abuse rate up rate down Reply
xvertigenx

Good. Close down all plants and move production to the US.

March 16 2011 at 3:44 PM Report abuse rate up rate down Reply
Harry

I know nothing about labor and manufacturing, but wouldn't it be cool if some/all of this work could be brought back to the shores of Apple. It would be nice to reduce the number of unemployed and trade deficit.

March 16 2011 at 3:43 PM Report abuse rate up rate down Reply
2 replies to Harry's comment
Wayne Pascoe

If any Apple manufacturing were brought back to American shores, you could probably expect them to increase their products pricing by around 50%. Minimum wage, OSHA, costs like electricity and refuse removal - those are ALL higher in America than in Asian 'production' regions.

At the same time, all of Apple's competitors would still be manufacturing in these regions (remember, foxconn does a LOT more than just Apple stuff!) and would be able to murder Apple on price.

March 16 2011 at 5:36 PM Report abuse rate up rate down Reply
nikster

"It would be nice to reduce the number of unemployed and trade deficit."

No problem, as long as Americans are willing to work in a complex with 100,000 workers for about $5 per day. Unemployed are gone. Problems are solved. I don't think you'd find too many volunteers though.

March 16 2011 at 10:55 PM Report abuse rate up rate down Reply
Thomas Platt

That's just disgusting, sir.

March 16 2011 at 3:13 PM Report abuse rate up rate down Reply
David S

The rate is still increasing. that is, there are more products this feb than last feb.

Lets use a car analogy.

two year ago, lets say, we were going 50 mph
last year, we would have been going 85 mph
this year, we would be at about 100.

So the rate of acceleration is decreasing, not the rate of production.

March 16 2011 at 1:40 PM Report abuse rate up rate down Reply
2 replies to David S's comment
Rego

Good explanation! Makes sense to me!

March 16 2011 at 3:07 PM Report abuse rate up rate down Reply
nikster

Yes - that seems to be lost on most readers. The rate of growth slowed down, which means there was still growth.

If you look at the numbers, there was _excellent_ growth - 26%. Any corporation world-wide would take that in a heartbeat. But because the previous growth rate was ridiculous (86%), growth is slowing down.

Ask yourself this: How long can anybody sustain a growth rate of 86%? If they did it for 10 years, they'd employ the entire workforce of the planet. Roughly speaking, let's say they have 1M employees. They grow at 86%, nearly doubling every year. In 10 years they'd have 1000 Million or 1 Bn employees. Absurd, right? About as absurd as the "concerns" these so-called "analysts" have.

March 16 2011 at 11:00 PM Report abuse rate up rate down Reply
Vito

In all likelihood, the increase in growth was due to a new product launch last year - the iPad. As this year is seeing no new product (iPad 2 is just a new version) so we're not seeing the need for much more capacity. I think Apple's got just the right amount of capacity - sure at launch supply is tight - but for the rest of the year there is enough quantity on hand.

You never want too little supply, but you never want too much either.

March 16 2011 at 1:33 PM Report abuse rate up rate down Reply
andybaird

Whoa! Foxconn production is NOT slowing down. Contrary to your misleading headline, the numbers you cited prove that the company is still INCREASING its production capacity (e.g., by 26% in February). It's just not increasing as fast as it was a year ago. There is no "slowdown" here. Now how about rewriting that panic-mongering headline?

March 16 2011 at 12:50 PM Report abuse rate up rate down Reply
1 reply to andybaird's comment
Kevin Gass

"It's just not increasing as fast as it was a year ago. "

Which means its slowing down lol.

March 16 2011 at 1:09 PM Report abuse rate up rate down Reply
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