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Apple Falls After IPhone Builder Foxconn Halts Hiring

By Tim Culpan and Adam Satariano
February 21, 2013 1:07 AM EST 46 Comments
The iPhone is Apple’s best-selling and most-profitable product, and accounts for more than half of the company’s revenue.
Photographer: Victor J. Blue/Bloomberg
The iPhone is Apple’s best-selling and most-profitable product, and accounts for more than half of the company’s revenue.

Foxconn Technology Group, the maker of products including Apple Inc. (AAPL)’s iPhone, said it was freezing hiring at factories in China, fueling concern about a slowdown in consumer-electronics demand and prompting Apple to fall.

Foxconn halted recruitment until the end of March after more workers returned from the Lunar New Year break than a year earlier, Bruce Liu, a spokesman for the Taipei-based company, said yesterday by phone. The decision wasn’t related to iPhone 5 production, he said, countering an earlier Financial Times report. Steve Dowling, an Apple spokesman in Cupertino, California, declined to comment.

Apple declined 2.4 percent in New York yesterday as the Foxconn freeze underscored concerns about slowing smartphone demand and rising competition from Samsung Electronics Co. The hiring halt may also reflect how Foxconn’s Hon Hai Precision Industry Co. (2317) has been hit by the introduction of a smaller iPad and Apple’s move toward using more assemblers, said Fubon Securities Co. analyst Arthur Liao.

“Hon Hai’s major product, the 9.7 inch iPad, is in decline,” Liao said. “For the iPad Mini, Hon Hai has to share.”

Pegatron Corp. (4938) assembles about 40 percent of iPad Minis, Liao said. Foxconn is the sole manufacturer of the original iPad, which is losing market share to the new version, he said.

Hon Hai Precision, Foxconn’s flagship company, dropped 1.9 percent, the most since Jan. 24, to NT$83.20 at the close in Taipei trading. Pegatron rose 0.1 percent to NT$40.55, the highest since Oct. 22. Apple ended at $448.85 yesterday, compared with its record close of $702.10.

Workers Return

The hiring freeze may also reflect a wider increase in Chinese workers returning after the Lunar New Year break, according to Amit Daryanani, an analyst at RBC Capital Markets LLC. Close to 90 percent of workers have returned this year compared with traditional levels below 80 percent, Daryanani wrote in a note yesterday, citing company checks.

“We do understand why the hiring freeze may get construed negatively,” he wrote. However, the timing of the freeze suggests “it may have more to do with higher return rates of employees versus what was expected.”

Foxconn has more than doubled wages and cut hours for workers following protests from groups including China Labor Watch and Students & Scholars Against Corporate Misbehavior. The company is also giving workers greater representation in unions. Many migrant workers in China make their only trip home during the weeklong New Year break, which this year started Feb. 11.

Hewlett-Packard Orders

Foxconn may also have stopped hiring because of Hewlett- Packard Co. ordering fewer personal computers, according to Steve Milunovich, an analyst at UBS AG. Hewlett-Packard accounts for about 8.1 percent of Hon Hai’s revenue, trailing only Apple’s 33 percent share, according to Bloomberg supply-chain estimates.

“HP has a very diversified supplier strategy, unlike other companies who are more dependent on a single vendor,” Michael Thacker, a spokesman for Palo Alto, California-based Hewlett- Packard, said in an e-mailed statement. The company fell 1.1 percent to $16.70 in New York trading, extending its decline in the past year to 43 percent.

Hon Hai has also decided to postpone the expansion of capacity at a plant in Zhengzhou, China, where iPhones are assembled, Nikkei reported today. The newswire reported last month that orders for iPhone 5 parts had been cut by about 50 percent following lower-than-expected sales.

Apple will sell 38 million iPhone 5s this quarter, 20 percent less than the prior period, predicted Alexander Peterc, an analyst at Exane BNP Paribas.

Apple Chief Executive Officer Tim Cook has cautioned investors against reading too much into reports about activities within its supply chain.

“Even if a particular data point were factual, it would be impossible to accurately interpret the data point as to what it meant for our overall business because the supply chain is very complex,” Cook said on a conference call last month.

To contact the reporters on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net: Michael Tighe at mtighe4@bloomberg.net

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