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Foxconn Hiring Freeze Ignites Rumors of Chilled iPhone Demand

By John P. Mello Jr. MacNewsWorld ECT News Network
Feb 22, 2013 9:42 AM PT

Foxconn, the Chinese technology manufacturer for many popular devices including the iPhone 5, said this week it was cutting back on hiring. However, the company met attempts to tie that action to reports of cutbacks in demand for Apple products with a resounding "no."

Foxconn Hiring Freeze Ignites Rumors of Chilled iPhone Demand

Foxconn claimed it was slowing down its recruitment process due to an unprecedented rate of employee return following the Chinese New Year holiday.

Traditionally, many Foxconn workers don't return to their jobs after they go home for the holiday. This year, though, the company said more than 90 percent of the workers returned to their jobs, making it unnecessary to go on its annual post-New Year hiring binge.

Foxconn's reason for the hiring slowdown, however, was questioned by the Financial Times, which reported that the company froze hiring because Apple had reduced orders for iPhone 5s.

Foxconn strongly denied that report, saying the action was not related to any single customer and any speculation to the contrary was false and inaccurate.

Foxconn and Apple did not respond to our requests to comment for this story. The hiring slowdown probably won't mean a lot to Apple, noted Chris Versace, editor of iPowerTrend Profits.

"Foxconn does a lot of things for many different hardware companies -- Amazon, Dell, Motorola, Nokia and HP," he told MacNewsWorld. "Slower hiring could be due to slower demand for any and all of those companies."

Sales are soft in a number of electronics areas -- PCs, e-readers, and all mobile phones, not just smartphones or the iPhone, Versace added.

Foxconn's hiring news raised concerns about a broad range of potential ramifications. "Foxconn does a lot more than just make iPhones," Michael Morgan, mobile devices analyst with ABI Research told MacNewsWorld. "Apple could have a meaningful impact on their business, but it's not an absolute game-changer for Foxconn."

A Good Sign

From the perspective of working conditions at Foxconn -- which have been widely criticized and have embarrassed Apple on more than one occasion -- the hiring freeze could be good news, Morgan observed.

If more employees are returning to their jobs, "that's a good sign," he said. "It looks like work conditions are getting better, so they're having a lower attrition rate."

That doesn't offset the fact that smartphone growth in general is slowing, he added. "That condition is probably driving the hiring slowdown. You can't just blame it on Apple."

The growth in smartphones is happening at the low end of the market, Morgan explained. "The high end of the market has turned into a retention game."

Even at the low end, penetration isn't as rapid as many predicted it would be, he noted.

Fast Delivery Decade

Whatever the reason for the hiring slowdown, the handwriting is on the wall for Foxconn's future business with tech companies, said Trip Chowdhry, managing director for equity research at Global Equities Research.

"In this decade, having products produced cheaply will not give a company a strategic advantage," he told MacNewsWorld.

Sometimes it can take six weeks to get an Apple product. "Do you think that is acceptable?" Chowdhry asked. "I don't think so."

Companies that get their products into consumers' hands fast will dominate their markets this decade. "The velocity and control Apple can exert by producing its products in the United States will outstrip any cost advantage of producing its products overseas," he argued.

"All production doesn't have to come back to the United States," Chowdhry added. "If the consumer is in China, a product is best produced in China. If it's produced in India, it's best produced there ... Having global production in China and using FedEx to distribute around the world is a losing proposition in this decade."

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