UPDATE 10:30 am EST: ValueWalk has received the following statement from Foxconn Technology Group:
Foxconn wishes to clarify that a media report that alleges that our company is reducing its workforce is completely inaccurate and totally without foundation. We continue to recruit employees to support our business and operations globally and we continue to maintain a workforce of over one million employees worldwide. As we have long said, Foxconn is investing in the automation of many of the manufacturing tasks associated with our operations, applying robotic engineering and other innovative manufacturing technologies to enable our employees to focus on high value-added elements in the manufacturing process. As we continue to increase the application of automation in our operations, the magnitude of our employee recruitment is expected to decrease in the years ahead, but we have no plans to reduce our workforce numbers now or anytime in the future. In addition, our company is confident that we will continue to achieve sustained business growth in the years to come.
Foxconn, the largest contract electronics manufacturer worldwide, announced on Tuesday that it has plans to significantly reduce its workforce, as Apple’s primary supplier is dealing with slowing revenue growth and increasing labor costs in China.
Taiwan-based Foxconn enjoyed huge growth for more than a decade as the popularity in PCs, smartphones and tablets, drove demand for its services, but the firm is currently feeling the effects of falling growth and product prices, a trend that most analysts anticipate will continue for some time.
Statement from Foxconn management
In an interview with Reuters, special assistant to the chairman and Foxconn group spokesman Louis Woo would not provide a time frame or specific target for the reduction in workforce, but did note that labor costs had more than doubled since 2010 (the company faced media attention following a spate of worker suicidesbeginning in 2010).
“We’ve basically stabilized (our workforce) in the last three years,” Woo explained. When asked if the company plans to reduce overall headcount, Woo replied “yes”.
More on the Foxconn layoff plan
According to the most recent projections, the growth rate for smartphone sales will be cut in half this year, down to 12 or 13% compared to 26% in 2014, according to researcher IDC, and PC sales are expected to continue to their long-term slump as 2015 sales are projected to contract by 3% in 2015.
Pricing pressures are leading to a similar trend, a the average smartphone is projected to sell for 19% less in 2018 than the $297 average cost in 2014.
“Even if technology is improving, the price will still come down,” Woo noted. “We’ve come to accept that, our customers have come to accept that.”
Automation will be key to keeping labor costs under control in the long-term, Woo commented, and said that Foxconn is working to have more robotic arms to complete basic tasks currently performed by workers.
Woo cautioned, however, that company chairman Terry Gou’s publicly stated goal of 1 million robots was “a generic concept” and not a firm target.