iPhone Manufacturer Scraping By On Thin Margins And Risks Of Factory
Sober Look | Sep 25, 2012 03:23AM ET
As consumers await to receive the shiny new iPhones they recently ordered, attention shifts to Apple's Taiwan-based primary supplier, Foxconn Technology Co. Ltd (otherwise known as Hon Hai Precision Industry Co). Can the company deliver on time? Or would the next factory closure disrupt production? After all, Apple's customers, particularly Americans don't like to wait.
Foxconn employs some million workers in China to meet this demand for Apple's as well as Amazon's, Nintendo's, and Mocrosoft's products (iPad, iPhone, iPod, Kindle, PlayStation 3, and Xbox 360.) With its massive manufacturing capabilities and Apple as a major client, one would think that Foxconn's shares should have benefited at least somewhat from AAPL's parabolic growth. But they haven't.
In fact Foxconn's shares even lag the Taipei stock index (TWSE) over the past five years in spite of these huge orders from Apple. It seems that the bulk of product margin goes to Foxconn's large clients. Working with thin margins makes Foxconn vulnerable - as the share price clearly shows. Foxconn's story is littered with complaints of poor working conditions and worker abuses (even suicides) as well as riots and factory shutdowns.
Foxconn has invested heavily to improve conditions for workers - which hit its bottom line. But recently a reporter from the Shanghai Evening Post infiltrated a Foxconn factory and detailed his experience as an assembly line worker. A "rough" English translation of his story is available worker discontent and factory shutdowns are on the rise. As a longer term strategy, Apple and others must be considering alternate suppliers outside of China, which does not bode well for China's manufacturing sector.
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