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St. Petersburg's Jabil looks to fresh markets as demand slows for Apple's iPhone

St. Petersburg-based Jabil is feeling the effects of slowing Apple Iphone sales. The company is looking to cut costs and is turning to robots to replace workers at its factories in China. This file photo shows a Jabil factory in Guangzhou, China.
St. Petersburg-based Jabil is feeling the effects of slowing Apple Iphone sales. The company is looking to cut costs and is turning to robots to replace workers at its factories in China. This file photo shows a Jabil factory in Guangzhou, China.
Published Jun. 16, 2016

Thanks a lot, Apple.

That's the simplest way to explain the sharp decline in earnings just reported by St. Petersburg-based Jabil. The bottom line of the manufacturing design and production company, which has long made iPhone parts for Apple as the smartphone took the world by storm, is wincing now that the world's iPhone obsession appears to be waning.

Apple is Jabil's biggest customer and accounts for a substantial portion of its profits.

"I acknowledge that earnings in the back half of fiscal year 2016 (Jabil's fiscal year ends Aug. 31) are disappointing, especially coming on the heels of a record first half," Jabil CEO Mark Mondello told analysts during a late Wednesday afternoon conference call. "But I'd ask that we keep this in perspective. We're dealing with a single issue, albeit one that today cuts deep. The company is in great shape and we'll get past these product demand issues that emanate from one sector of our business."

Jabil expects ongoing weakness in its mobility business, which includes Apple iPhones, will continue to hurt its bottom line through the remaining fiscal year, with earnings in that sector expected to drop 20 percent from a year earlier.

Jabil's latest quarterly earnings reveal the slowdown. Revenues for the three months ending May 31 slipped just over 1 percent to $4.31 billion. But net income dived to $5.2 million, or 3 cents a share, from $72.2 million, or 37 cents a share, a year earlier.

Mondello, ever bullish, repeated to analysts what has long been Jabil's core mantra: "We will make Jabil the most technically advanced manufacturing service company and do so in a profitable manner."

Jabil's other businesses — and there are many of them, as Jabil continues to diversify its expertise — are doing well, Mondello said. He cited Jabil's electronics manufacturing services, its ongoing push into health care technology, as well as growth in what Jabil calls "wearable technologies" and "data science" applications, plus the expansion of its Nypro unit, which specializes in product packaging.

"The good news is, as we sit today, new product ramps are going as planned," Mondello said. "We have a suite of catalysts for growth across products and services."

Sensitive to its shareholders, Jabil also committed $400 million to buy back company shares, which should bolster the company's stock. Jabil shares rose nearly 2 percent Thursday, closing at $18.77.

Given its intense global competition, Jabil is always on the hunt for ways to reduce its costs. One notable example is Jabil's rapid shift to automated assembly factories, now under way in China, where it has a long history of manufacturing and employs tens of thousands of workers.

Now Jabil is thinning those worker ranks with robotic tools, apparently with the blessing of a Chinese government that wants to keep its factory reputation lean and mean. Chinese worker pay has been rising in recent years, in the process making China factories vulnerable to new and lower-cost competition from countries such as Vietnam.

The Jabil strategy in China was the focus of a recent Wall Street Journal story.

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"This is the past," David Choonseng Tan, an operations director at Jabil, told the Journal, pointing to a line of workers hunched over the assembly line. "And this," he said, pointing to a line of machines next to them, "is the future."

Jabil, which employs roughly 150,000 people worldwide, is nothing if not resourceful. It celebrated its 50th birthday earlier this year and has enjoyed an uncanny knack in finding lucrative design and manufacturing niches other businesses have overlooked.

Mondello expects Jabil to find its new footing quickly, as early as the start of its new fiscal year. He called it a "snapback."

Contact Robert Trigaux at rtrigaux@tampabay.com. Follow @venturetampabay.