Apple believed to be subsidizing wage increases at Foxconn

Posted:
in General Discussion edited January 2014
After gross margins rebounded at Foxconn parent company Hon Hai Precision, one analyst has said he believes Apple "stepped up" and helped to pay for wage increases at its manufacturing partner.

While Hon Hai's gross margins went up, Apple saw its own gross margins drop from 47 percent last quarter to 42.8 percent this quarter. Its conservative guidance for the current September quarter goes even lower to 38.5 percent.

Analyst Adnaan Ahmad with Berenberg Bank said in a note to investors provided to AppleInsider on Monday that he believes the changes in gross margins at both companies signal that Apple probably played a major part in wage increases at Foxconn.

Ahmad noted that Hon Hai indicated this quarter that it was trying to get better terms from some of its customers, after labor costs increased by as much as 100 percent.

Apple's capital expenditures ballooned from $440 million in the December 2011 quarter to $2.1 billion in the June quarter. But those expenses were not related to Apple's plans to expand its corporate campus, Ahmad said, as the company recognized those costs in 2010.

While Ahmad believes Apple likely subsidized some of the wage costs at Hon Hai, the analyst is "fairly sure" that two other large Foxconn customers —?HP and Sony — didn't contribute, given the current "precarious situation" both technology companies find themselves in.

Tim Cook at Foxconn
Apple CEO Tim Cook touring an iPhone production line at a Foxconn plant in Zhengzhou, China.


Foxconn Chief Executive Terry Gou revealed earlier this year that his company and Apple would be sharing the costs to improve labor conditions at the Chinese factories were devices like the iPhone and iPad are assembled. But the executive did not detail how much Foxconn or Apple would be spending to improve working conditions, or how those costs would be split.

Foxconn has been facing criticism for years as some have referred to the electronics maker as a "sweatshop" where employees work long hours for little pay. The company has worked to improve its image, and Apple has encouraged those changes with a series of audits, including new independent reviews from the Fair Labor Association.

In March the FLA announced it had found a number of violations at Foxconn, after auditing its facilities at the request of Apple. Foxconn responded by reducing employee working times and addressing various code violations.

And last month, a new report from the FLA suggested labor conditions at Foxconn have improved since the audits conducted earlier this year.. The association announced that Foxconn had corrected some 284 infractions, including steps taken to create a safer workplace.
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Comments

  • Reply 1 of 36
    sricesrice Posts: 114member


    This is actually a pretty cool story.  I'm sure Chinese factory worker wages are horrible compared to US wages, but their cost of living is less.  Apple is fighting a good fight.


     


    It's going to be an interesting century as Chinese and Indian labor comes online, which will create a labor glut and makes it uneconomical for expensive labor countries to make anything.   I can't wait for the day when all labor costs and wages around the world are comparable -- I probably won't be alive to see it, but it'll be painful until it happens.

  • Reply 2 of 36


    Nope. Apple is a slavedriver and sweatshop owner. Apple workers in China commit suicide by the millions. They get beaten to a pulp by the Apple guards. This entire story is a lie.


    ????

  • Reply 3 of 36


    Correct me if I'm wrong but wasn't it already speculated that the sudden increase in capital expenditure was due to increased component buying prior to the upcoming largest release in iPhone history and components for the new, so called, iPad Mini?


     


     


    Not only that but since these Foxconn assembly workers get paid so little would a 25% wage increase amount to that much of an increase in capital expenditure? 

  • Reply 4 of 36


    I also think the story is false. Because if Apple does at one place, they will have to do it some other place. Apple is not a government, who is going to go around subsidizing workers wages, and that also in foreign country. Also not, while there is story being floated about them continue to layoff retail workers on account of earnings!

  • Reply 5 of 36
    lkrupplkrupp Posts: 7,096member

    Quote:

    Originally Posted by Tallest Skil View Post


    Nope. Apple is a slavedriver and sweatshop owner. Apple workers in China commit suicide by the millions. They get beaten to a pulp by the Apple guards. This entire story is a lie.


    ????



     


    Meanwhile another story regarding Samsung suppliers using child labor under appalling conditions, made by the same watchdog group that went after Apple, was barely mentioned on sites like C|net. No attention was given to it and it disappeared over night like it never happened. And people still claim there is no anti-Apple bias in the tech media.

  • Reply 6 of 36

    Quote:

    Originally Posted by lkrupp View Post


     


    Meanwhile another story regarding Samsung suppliers using child labor under appalling conditions, made by the same watchdog group that went after Apple, was barely mentioned on sites like C|net. No attention was given to it and it disappeared over night like it never happened. And people still claim there is no anti-Apple bias in the tech media.



     

    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }

    Please provide a link so everyone here can spam the story.  I certainly will.


    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }

     
  • Reply 7 of 36

    Quote:



    Please provide a link so everyone here can spam the story.  I certainly will.




    Samsung's Supplier Factory Exploiting Child Labor


    http://www.chinalaborwatch.org/pro/proshow-175.html

  • Reply 8 of 36

    Quote:

    Originally Posted by lkrupp View Post


     


    Meanwhile another story regarding Samsung suppliers using child labor under appalling conditions, made by the same watchdog group that went after Apple, was barely mentioned on sites like C|net. No attention was given to it and it disappeared over night like it never happened. And people still claim there is no anti-Apple bias in the tech media.



     


     


    Apple gets all the glory in consumer tech - having revolutionized the entire segment several times over. Unfortunately (and naturally), they'll get not just the positive but also the negative coverage. 


     


    The only way Samsung (and a lot of others) can make any real headlines is if their story is somehow tied to Apple, often as a trailer to the main Apple story. 

  • Reply 9 of 36

    Quote:

    Originally Posted by sessamoid View Post


    Samsung's Supplier Factory Exploiting Child Labor


    http://www.chinalaborwatch.org/pro/proshow-175.html



     


     


    WHEN WILL APPLE DO SOMETHING ABOUT IT!?


     


    Won't Apple PLEASE think of the children??


     


     


     


    That's how these things go these days . . .

  • Reply 10 of 36
    lkrupp wrote: »
    Meanwhile another story regarding Samsung suppliers using child labor under appalling conditions, made by the same watchdog group that went after Apple, was barely mentioned on sites like C|net. No attention was given to it and it disappeared over night like it never happened. And people still claim there is no anti-Apple bias in the tech media.

    Tech media is like many sites. Only interested in the hits. Apple gets hits way above everyone else.

    People might be shocked to learn that Samsung, Microsoft etc also sue folks.
  • Reply 11 of 36
    nagrommenagromme Posts: 2,834member


    1. Apple finds problems, caused not by Apple but realities in China. Reports them to the public with specific plans to improve, not just vague promises.


     


    2. People forget the info came from Apple and claim Apple tried a cover-up.


     


    3. Apple requests public and independent reviews, with results Apple knows they don’t control. No other company does this. Nobody cares.


     


    4. Media invents or repeats additional lies to exaggerate the situation.


     


    5. The cover-up hysteria grows into boycotts, and people switch to Samsung and other companies with the same or worse problems—and no plan to fix them.


     


    6. The lies are disproven. But nobody remembers that. 


     


    7. Apple’s plans to improve are successful, by independent review. New plans are added. They don’t make a big thing about it. Nobody notices.


     


    8. During all this time, Samsung and others have worse problems, cover everything up, and solve nothing. Nobody cares.

  • Reply 12 of 36


    Originally Posted by charlituna View Post

    Tech media is like many sites. Only interested in the hits. Apple gets hits way above everyone else.


     


    They could at least not lie about it, then.


     



    Originally Posted by nagromme View Post

    8. During all this time, Samsung and others have worse problems, think Apple actually has these problems, create real, identical problems in their own plants to copy Apple. No one cares.


     


    Fixed. image

  • Reply 13 of 36



    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }
    To keep some perspective here... suicide remains a problem in everywhere in China, not just at Foxxcon. I don't believe that China's suicide rate PER CAPITA is much worse than many countries.


     


    The problems lie more at the governmental level anyway. They do not have the labor laws that other countries have. They do not have the pollution controls that other countries have to abide by. Not to mention that Chinese officials are well known for looking the other way.


     


    At least Apple is trying, and it appears as though those efforts are making somewhat of a difference and I hope that Apple continues. It's important. Samsung has now "appeared" to have finally stepped up in this regard too.


     
  • Reply 14 of 36
    john.bjohn.b Posts: 2,720member

    Quote:

    Originally Posted by AppleInsider View Post



    After gross margins rebounded at Foxconn parent company Hon Hai Precision, one analyst has said he believes Apple "stepped up" and helped to pay for wage increases at its manufacturing partner.

    While Hon Hai's gross margins went up, Apple saw its own gross margins drop from 47 percent last quarter to 42.8 percent this quarter. Its conservative guidance for the current September quarter goes even lower to 38.5 percent.


     


    Accounting FAIL.  Gross margin includes the increased worker's wages in the production costs.

  • Reply 15 of 36


    I don't understand the use of the word "subsidizing" here.


     


    What is Apple subsidizing? All I can see is Apple paying more to a vendor who needs to raise prices in order to meet Apple's new requirements. That's not a subsidy, it's a cost increase.


     


    I think this is a good thing, by the way. I'm just puzzled at the language.

     

  • Reply 16 of 36
    slurpyslurpy Posts: 5,151member

    Quote:

    Originally Posted by Alonso Perez View Post


    I don't understand the use of the word "subsidizing" here.


     


    What is Apple subsidizing? All I can see is Apple paying more to a vendor who needs to raise prices in order to meet Apple's new requirements. That's not a subsidy, it's a cost increase.


     


    I think this is a good thing, by the way. I'm just puzzled at the language.

     



    If the story is to believed, Apple is paying a percentage of Foxconn's worker wage increases out of it's own pocket. Whether this is actually true or not is another matter. 

  • Reply 17 of 36
    nagromme wrote: »
    1. Apple finds problems, caused not by Apple but realities in China. Reports them to the public with specific plans to improve, not just vague promises.

    2. People forget the info came from Apple and claim Apple tried a cover-up.

    3. Apple requests public and independent reviews, with results Apple knows they don’t control. No other company does this. Nobody cares.

    4. Media invents or repeats additional lies to exaggerate the situation.

    5. The cover-up hysteria grows into boycotts, and people switch to Samsung and other companies with the same or worse problems—and no plan to fix them.

    6. The lies are disproven. But nobody remembers that. 

    7. Apple’s plans to improve are successful, by independent review. New plans are added. They don’t make a big thing about it. Nobody notices.

    8. During all this time, Samsung and others have worse problems, cover everything up, and solve nothing. Nobody cares.

    This is because Android-based smartphone proponents aren't very intelligent or they are dishonest. While that may seem a harsh statement it is reality. They are blinded by their hatred of Apple.

    I have never understood Apple-hatred from anyone other than an information technology professional although even then the hatred isn't justified. Some information technology professionals believe Apple computers will make their function nearly obsolete if everyone has a computer that "just works." This is not true, they simply need a different skill set but they can't imagine proactive service and support instead of responding to every "fire." Alternatively, the "fires" make them seem like heroes which likely means to receive more funding.
  • Reply 18 of 36
    MarvinMarvin Posts: 14,219moderator
    Not only that but since these Foxconn assembly workers get paid so little would a 25% wage increase amount to that much of an increase in capital expenditure? 

    Nope, the wage increase wouldn't impact their margins nearly as much as noted, I'd estimate a couple of hundred million at most. Whether the figures corroborate a contribution is unclear but I think they will have done the right thing by taking a minimal hit to help those workers out.
  • Reply 19 of 36

    Quote:

    Originally Posted by MacBook Pro View Post





    They are blinded by their hatred of Apple.


     


     


    *jealousy* of Apple.


     


     


    Because Apple's continued success, their cockiness, their daring, their belief in their own strategy in the face of opposition, their foresight, the way they humiliate their competitors and then teabag them in Consumer Satisfaction, their devotion to a closed ecosystem (!), their shrewdness, their obsession with detail and control, their devotion to making tech easy, usable, and less complex for Joe Average (read: can't tinker, sorry IT crowd), and their insistence on protecting what's rightfully theirs . . . drives them absolutely batshit crazy. 


     


    And it warms my heart to see that. 
  • Reply 20 of 36


    I just don't get this story at so many different levels. Sounds like pure nonsense.


     


    How can Apple send a check for some other company's wages? Send it to whom, with what instructions? How does it show up (or not) as a difference in Apple's gross margins? Apart from component costs, GM should include only direct labor costs, but in order to record it as 'direct', wouldn't Apple have to employ them?


     


    Moreover, attributing a decline in Apple's margin by 3.2% of sales from doing this would imply that Apple sent Foxconn a check of (something in the region of) $5B during the forthcoming year. Assuming one-quarter of Foxconn's 1 million employees work full-time-equivalent on Apple products, that would be sending a check of ~$20,000 per worker.


     


    Is my arithmetic wrong?

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