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Key Apple Supplier Halts Hiring Due To Poor iPhone Sales

Two months ago, Tim Cook reportedly wrote Jim Cramer that everything was awesome with iPhone sales in China. Days later, channel checks appeared to call Cook's statement into question. Several day ago, one of Apple's component makers - Dialog Semi - issued cautious guidance strongly suggesting iPhone sales momentum was weakening. Apple's earnings produced disappointment as China sales rather notably fell (but was quickly dismissed by analysts as US sales rose) and now, perhaps most worrying of all, Taiwan’s Pegatron Corp - maker of Apple's next-gen iPhone 6S and iPad - has halted hiring in its Shanghai factory as workers note "sales of iPhone 6S have been disappointing."

In May 2013, Pegatron became "the new FoxConn" as then new Chief Executive Tim Cook, Apple divided its weight more equally with a relatively unknown supplier, giving the technology giant a greater supply-chain balance.

Pegatron Corp., named after the flying horse Pegasus, will be the primary assembler of a low-cost iPhone expected to be offered later this year. Foxconn's smaller rival across town became a minor producer of iPhones in 2011 and began making iPad Mini tablet computers last year.

Back in June 2014, everything was awesome:

Two companies that assemble Apple’s iPhones and iPads are on a hiring spree, a signal that orders from the Cupertino-based group are ramping up ahead of the launch of a new device.
not so much

 

Taiwan’s Pegatron Corp, which employs 100,000 people, said on Monday that it is expanding its workforce in mainland China by 30 per cent to keep up with the production of smartphones.

But now, in October 2015, the huge facility at Pegatron Technology's factory in Shanghai sports a deserted look, as China Daily reported moments ago.

Gone are crowds waiting for job interviews or others who come to enquire about possible job openings.

 

The facility, which at its peak employed around 100,000 people, has temporarily suspended hiring as demand for Apple products has waned considerably.

 

The winding passage that leads to an interview room is all but deserted. Rather than excited faces, one can see young employees trudging out of the facility with fatigue and despair written large on their face.

 

Zhang Libing, a 23-year-old from Anhui province, told China Daily that he had just resigned from his job at Pegatron as he was exhausted and fatigued with the long working hours. Next to him was a huge electronic screen that kept flashing the message that the company has put on hold all fresh hiring for the time being.

 

"We are not surprised at that," Zhang said. "The sales of iPhone 6S have been disappointing. I am afraid that if we do not leave now, we will be laid off soon."

 

...

 

China, its biggest market outside the United States, accounted for nearly one-fourth of its total revenues in the fourth fiscal quarter because of its robust handset sales in the country. But fresh concerns have arisen over whether the company would be able to sustain the sales momentum.

 

Fading enthusiasm for iPhones in China has dragged down the device prices in the parallel market and hit new orders to the supply chain partners.

 

Pegatron was planning to hire roughly 40,000 workers for its Shanghai plants in the summer when Apple entrusted it with the iPhone 6S and iPad manufacturing. The current employee strength of the company remained unclear.

It appears things have changed dramatically in a very short period of time...

Cai Xiaoshuai left his hometown in Luoyang of Henan province and landed a job at the assembly line in Pegatron four months ago. But the 22-year-old man said he had had enough. His basic wage was 2,020 yuan ($320) per month and he had to work overtime for 2.5 hours every day to make sure that his salary would get close to 4,000 yuan.

 

"Some of my friends went to Kunshan in Jiangsu province to try their luck there. But it seems that the electronics industry there is in an even worse shape. So I am thinking of staying on and checking out other opportunities in Shanghai. But I will definitely not work in any electronics company. I have had enough," said Cai.

Which leaves us asking, as we did when doubts began to surface about Cook's letter to Cramer:

So is AAPL the next AOL, and is Tim Cook the next Thorsten Heins?

 

It all depends on China: if the world's most populous nation can get its stock market, its economy and its currency under control, then this too shall pass. The problem is that if, as many increasingly suggest, China has lost control of all three. At that point anyone who thought they got a great deal when buying AAPL at $92 will have far better opportunities to dollar-cost average far, far lower.

Oh, and to anyone still holding their breath for AAPL to file a public statement which may well contain an outright lie, you may exhale now.