$12M govt subsidy to help Foxconn minimize layoffs fuels speculation of falling iPhone sales [Updated x2]

[Update 2: Reuters reports that Foxconn has published an earnings report showing a 20% fall in December revenues. However, the company says that its December earnings were “as expected,” and its full-year earnings are up 6.42% on the previous year, only marginally short of analyst expectations of 7%.]

[Update 1: StreetInsider reports that Foxconn has denied reports that workers started their lunar new year holiday early, and says that the government payout relates to ‘an insurance premium,’ but makes no reference to any response to the claim that it has been laying off workers.]

The WSJ is today suggesting that Apple is scaling back iPhone orders, noting that iPhone manufacturer Foxconn has been laying off workers and has received a $12.6M subsidy from the Chinese government through a program designed to minimize unemployment.

The piece notes that the subsidy is for Foxconn’s Zhengzhou plant, which is mostly devoted to iPhone production, and says that Apple has also reduced order forecasts for iPhone component makers.

Chinese iPhone factories had some idle capacity in the final two months of the calendar year, when they would typically be racing to chongliang, or “rush quantity,” for Apple, in factory-speak. Some workers at Foxconn’s Zhengzhou factory in inland China were let go on early holiday last month, one of the people involved in the supply said, although the typical new-year holiday season doesn’t start until February.

Foxconn is not the only company to receive government support to protect jobs in the Zhengzhou area, with 134 other companies also receiving support, but the WSJ says that the iPhone manufacturer received more than half of the total, with IDC analyst James Yan linking this directly to iPhone sales.

Zhengzhou is the largest base for iPhone manufacturing, so this should reflect iPhone sales.

Both Foxconn and fellow iPhone assembler Pegatron have seen their share prices fall amid speculation of falling demand for iPhones, as has camera module supplier Largan. Apple’s share price has likewise fallen, in part due to a claim by Japan’s Nikkei newspaper that the company is expected to reduce output well below its initial projections.

The shares are down 13% over the past month. The stock fell 2.5% to $102.71 on Tuesday after Japan’s Nikkei newspaper reported that Apple is expected to reduce its output of iPhone 6S and iPhone 6S Plus handsets by 30% in the quarter ending in March from its original projections.

There have also been reports of flagging sales of the iPhone 6s/Plus as price cuts and deals were offered.

As ever, it’s hard to tell signal from noise where supply-chain reports are concerned. Apple would always expect to see a significant drop in demand immediately following the holiday quarter, and its complex supply chain means that a drop in orders from individual suppliers do not necessarily reflect a reduction in product demand.

Predictably, none of the parties involved were saying much. Apple would only tell the WSJ that it never discusses sales forecasts; Foxconn made a generic comment that “the incentives were provided to Foxconn in recognition of our company’s contributions to maintaining our significant work force at our Zhengzhou facility throughout that year”; and the Chinese government didn’t respond to a request for comment.

We’ll need to wait until January 26 to get a real steer on the current quarter, when Apple will release revenue guidance alongside its holiday quarter earnings report.

Photo: Bobby Yip/Reuters