Tag Archives: Foxconn

Cracks in the BRIC

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BRIC is the acronym that stands for Brazil, Russia, India and China. Those four nations are seen as most significant of the emerging industrial economies.

They are also learning each other’s tricks — and fast.

China has long insisted that MNCs that want to win cash-rich contracts to build out that nation’s infrastructure come prepared to share that technology with its local contractors. Call it mandatory tech transfer.

Well, Brazil, it appears, is taking the same approach. The country, reports the Wall Street Journal, is holding back more than a billion dollars in financing until  Foxconn International Holdings agrees to bring its latest LCD technology to its planned factory in Minas Gerais.

All’s fair in love and trade, I suppose.

 

After the Product Build

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Some very interesting developments in after-market services these days.

One major player, Celestica, has been expanding its AMS for the past several years as it seeks higher margins. Higher-value services now represent roughly 5% of the company’s revenue, according to Deutsche Bank. (AMS in this case consists of everything from logistics to in and out of warranty repair.)

Skip Boothby, Celestica’s director of Global Services (which includes AMS), says they see two primary trends:

1.  Postponement regional configure to order: Celestica sees order fill rates falling because the decision (forecast) is made too early in the product life cycle. The response is that the product is built to the lowest common denominator and shipped to a lower cost region where it is then built to order.

2. Direct order fulfillment: Here, Celestica sees product being built in a low cost region and shipped direct to the customer within a couple days. An example is Apple building PCs at Foxconn in China. The opportunity for the EMS is to add the transportation element which, if it can master, adds a new profit center.

Boothby says Celestica is trying to execute a “control tower” strategy whereby they oversee everything from rework/repair to logistics/reverse logistics to warranty and field service. He said their transportation management service is “very profitable” (but didn’t put a number on it).

They currently sell these services a la carte. They have considered developing a licensing arrangement or other pricing models. They want to make it affordable for startups and companies where their client relationship is in the “low millions.” This is just starting to be rolled out. The average AMS account is $7 million, all of which is value-added (labor, not materials). Most customers are not existing PCBA manufacturing customers. Most AMS work is one-off.

Boothby’s comments came during the Outsourcing Navigator Council meeting, produced by Charlie Barnhart Associates and hosted at Teradyne. If you’ve never attended one of these meetings (they host one or two a year), they really are very valuable, and draw a good cross-section of supply chain executives. I’ll have more on this shortly.

 

3 Thoughts on Foxconn

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A few thoughts on Foxconn in the wake of last night’s Fair Labor Association report:

1. Not that Mike Daisey feels much better today, but the excessive overtime was clearly way out of whack with Chinese law.

2. The FLA head was very clear in stating that Foxconn’s assembly lines are on par with any in the world. We knew that. There’s only so many placement machines and screen printers out there. Don’t let that obscure the larger picture, which was the dehumanization of employees. One quote that jumps out: “We’ve got to make sure people can opt out and if they do feel that they’ve suffered any kind of incriminations as a result, that they can complain, and that complaint will be handled fairly.”

3. The Electronic Industry Citizenship Coalition, which supposedly sets standards on how electronics OEMs should behave, has been fully exposed as being nothing more than a PR front.

Finally, you should read this piece from the Silicon Valley Mercury News that explains what the FLA is — including the main source of its funding.

 

Can Cook Take the Heat?

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CEO Tim Cook has taken to the Apple airwaves, rebutting claims made by The New York Times and others that company indirectly contributes to worker abuse but not rejecting Foxconn as a supplier.

In a letter, published yesterday by 9to5mac, Cook wrote, “Every year we inspect more factories, raising the bar for our partners and going deeper into the supply chain. As we reported earlier this month, we’ve made a great deal of progress and improved conditions for hundreds of thousands of workers. We know of no one in our industry doing as much as we are, in as many places, touching as many people.”

I’ll address the second point first. It’s true Apple has been singled out for bad corporate behavior toward Third World workers, while companies such as Dell and H-P are equally reliant on their supply chains (often the same suppliers), yet receive far less flak. It says here Apple is getting the brunt of bad publicity for good reason. The company has struck a wholly sanctimonious tone toward those who dared criticize its leadership. It has been strident in its support of Foxconn, the biggest (in size and in number of incidents) purveyor of recorded worker abuses. Apple on any given day is the largest (by market capitalization) company in the world. If a critic wants to make a point at a company’s expense, who better than Apple? Frankly, HP and Dell have been so beset by internal management problems, attacking them for supply-chain problems seems somewhat quaint by comparison.

As for the first point (“Every year we inspect more factories, raising the bar for our partners and going deeper into the supply chain.”), the truth is Apple does not visit every one of its suppliers every year. In 2011, Apple conducted 229 audits, 100 of which were first-time audits. According to the company, 97% of Apple’s procurement expenses are from 156 vendors. Incredibly, by Apple’s own admission, the logic says it audited many of its suppliers for the first time in 2011. (Either that, or the math isn’t working out, unless Apple is churning its supply base — composed primarily of well-known companies in their respective fields — with great rapidity, or that supply base is adding new plants with even greater rapidity, because the number of first-time audits has been at or over 100 three years running.)

I commend Apple for bringing some degree of transparency to the issue. But the numbers don’t quite add up. Nor does the nagging feeling that Apple, which perhaps has no parallel when it comes to leveraging a supply chain for competitive advantage, could effect positive change at places like Foxconn and Pegatron, if only it were willing to shoulder the financial risk.

When you have $100 billion* in the bank, you can afford to stop by each of your suppliers at least once a year. And when you’re the biggest company in the world, and apparently comfortable lecturing anyone else on what they should think, then you’d better be able to handle the blowback. If Cook can’t handle the heat, he should get out of the kitchen.

*Actually $97 billion.

Mike’s Main Man

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He wasn’t yesterday, and he might not be tomorrow, but for today, Tim Main is my hero.

The Jabil chief today became the first major electronics executive to publicly rebuke Foxconn, the world’s largest EMS company. At its annual shareholders meeting, Main asserted that Foxconn has “some very abusive policies, employment policies. And I think their business will begin to suffer because of the way they treated their employees.”

OK, so it doesn’t rise to the level of Occupy Shenzhen, but for our little tightly wound industry, this ranks as an outburst. And there is perhaps some risk involved in making such statements. Jabil has been taking on a bigger helping of Apple’s pie, with Main today suggesting the visionaries behind the iPad and iPhone now represent more than 10% of the contract assembler’s revenue. Foxconn’s success has been tied in so small part too that of Apple’s and vice versa. For Apple to cut the cord, or even let it fray a bit, would run directly against the many years of staunch support for its China CM.

Then again, perhaps Jabil’s gains are coming at Foxconn’s expense, and Apple is basing its procurement decisions not just on cost and execution but also other, more humane factors.

Or so we can hope.

Way to go, Tim.

Hitachi Exits TVs

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Hitachi plans to outsource all its television production, becoming the latest Japanese OEM to exit TV manufacturing.

Which EMS company will benefit?

My money’s on — who else? — Foxconn. A year ago, Hon Hai (Foxconn’s trading name) reportedly was planning to invest in Hitachi’s Display Products Group. (Foxconn has a history of supporting the companies with which it hopes to do assembly or ODM business, and already builds TVs for Sony, Sharp and others.)

Meanwhile Flextronics, which has opened up considerable capacity by exiting the ODM PC business, does not seem to be a contender. The EMS company says it is trying to reduce its exposure to high-volume consumer electronics (along with its inherent cyclicality and margin-challenged ways).

Some of the other Taiwanese ODMs, such as Wistron and Pegatron, may be in the mix. Toshiba has history with both. Toshiba also  outsources some television production Konka Group in China.

How Much Would You Pay?

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Would you be willing to pay for more “fair-trade” electronics?

The host of This American Life, a public radio show based in Chicago, revives that debate in a recent segment on Mike Daisey —  the author of The Agony and Ecstasy of Steve Jobs — and his visit to Shenzhen (so polluted, it looks like “Bladerunner threw up on itself”).

The issue over China’s labor practices, the show finds, boils down to that question.

 

Apple’s Enablers

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Another Apple supplier — this time Pegatron — has blown up. Fortunately this time no one died, but 61 workers were injured, 23 badly enough to require hospitalization.

In the wake of the accident, I’m sure we’ll be treated to all the usual platitudes about how seriously Apple takes its corporate citizenship, an argument that becomes harder to swallow with each passing disaster.

How long are we going to operate under the premise that consumers actually care about where their products come from? “We have met the enemy, and he is us.”

 

Why Cook Won’t Change Apple’s EMS Recipe

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New Apple CEO Tim Cook will make no changes to its outsourcing recipe.

That’s my take, based on an assessment of the iPhone maker’s balance sheet.

Cook, of course, has been named to succeed Steve Jobs, who has been fighting a particularly deadly form of cancer.

Foxconn is telling reporters the change at the top won’t impact the companies’ relationship. I couldn’t agree more. It can’t. Much like the US-China relationship, Apple needs Foxconn, and Foxconn needs Apple. Apple carries some $11 billion worth of outstanding off-balance sheet commitments for outsourced manufacturing and components, plus another $1.6 billion committed to manufacturing equipment, presumably for the Foxconn-run plants.

Why would Apple commit all that cash to equipment purchases, when it does not have the internal capacity to build product itself? Because it owns the machines in the Foxconn plant. Although Foxconn has moved much of its Shenzhen campus operations inland to take advantage of lower labor costs, rumor has it the site remains open solely for the benefit of Apple. Apple is said to pay Foxconn roughly $6 for every finished working assembly.

With demand for Apple’s iPads, iPhones, Macs and iPods cresting, it couldn’t leave if it wanted to. If anything, Foxconn is in better position to absorb the loss of Apple than the other way around.