Demonetization has taken a toll on Foxconn, the world s largest contract manufacturer, which has reportedly asked about a fourth of its 8,000-strong factory workers in India to go on paid leave for two weeks. Following the ban on old of Rs 500 and Rs 1,000 currency notes, Foxconn reported a severe cash crunch that resulted in a sales dip of almost 50 percent, forcing the company to cut down production by half. Also Read - Apple iPhone 13 series launch could be delayed due to chip shortageAlso Read - Apple to boost iPhone production in India to reduce Chinese dependancy: Report
Foxconn currently accounts for around 50 percent of handsets assembled in India and makes devices for companies including Xiaomi, OPPO, Gionee, Infocus, Lava, Intex, Karbonn and Micromax. In India, where a majority of the price-conscious consumers purchase mobile phones for less than Rs 5,000 and most of the transactions happen through cash, demonetization is proving to be a major blow. Foxconn has four factories in Sri City, Andhra Pradesh, and has put about 1,700 of its workforce on the bench or forced leave during which they will get paid but the number of days would be cut from their earned leaves, ET reports. Taiwan-based Foxconn, which also makes premium Apple products including the iPhone and iPad, earlier this year launched a new facility in India for making mobile phones and planned to extend the production to laptops and computers. Also Read - Apple manufacturer Foxconn could soon set up factories in Mexico
According to a senior industry executive aware of Foxconn s manufacturing details, the process of putting workforce on bench may continue if production does not come to the 2 million-a-month level by January. In light of the current cash crunch, there has been a noticeable slump in PC and mobile phone sales in India. Research firm IDC has further predicted that there will be an immediate but temporary dip in the mobile and PC market in October-December quarter this year. It is expected that in the fourth quarter of 2016, feature phone shipments will decline sharply by 24.6 percent and smartphones are expected to see 17.5 percent decline sequentially. The impact of demonetization is more prominent in tier III and beyond cities where small retail shops transact more in cash and penetration of digital payments is yet to achieve the levels observed in bigger cities.
Foxconn’s partner companies Intex, Micromax, Lava, and Karbonn which aimed to cash in on Modi s Made in India initiative by manufacturing locally in India have also hinted at axing staff at their manufacturing units. Product head at Intex Technologies, Unnikrishnan M Thazhath, said that the company is mulling cutting down of production and deferring imports of semi-knocked down (SKD) kits. It is further expected that close to 600 people will be laid off in January at the company s Noida plant.
A senior executive at Lava International told ET that all 5,000 people who work in their factory have been asked not to come for a week starting today as the entire production of smartphones and feature phones will be shut through the week. Lava and Intex together produce over 5 million phones in a month, and employ over 10,000 people. ALSO READ: Demonetization to slowdown Indian PC, mobile devices market in Q4 2016: IDC
Earlier this year, Karbonn announced the setting up of its third manufacturing unit in Bawal, Haryana. The facility with a current capacity of 1.5 million units per month, was projected to rise to its full potential of close to 2.5 million units by year-end and create job opportunities for 4,000 people. However, given the demonetization, the company has also hinted at firing close 1,200 to 2,000 workers at its unit. According to a senior executive from the company, it is not expected that there will be normalcy in production for another 4-5 months and hence about 40 percent of the workforce could be asked to leave. Meanwhile, Micromax, which had long enjoyed being the number two player in the Indian smartphone industry, has also slowed production at Rudrapur and Telangana units.
Foxconn’s India plans included setting up of as many as 12 factories in India by 2020 to manufacture everything from LED TVs, batteries, and other electronics products. However, industry experts opine that the situation is unlikely to improve in the next 3-4 months. Given the intensity of the cash crunch, we could expect a slowdown on both the setting up of Foxconn units and their production capacities. ALSO READ: Demonetization effect: Over 100,000 Apple iPhones reportedly sold in just 3 days using old currency