Tag Archives: Pegatron

Apple to US a Supply Chain Hurdle

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It was, to paraphrase Homer, the headline that launched a thousand blogs: “Apple Could Make iPhones in US in Future: Sources.”

Cue all the breathless op-eds.

It won’t happen.

Not because Apple doesn’t care about the US. And not because Tim Cook, struggling as mightily as any billionaire could to fill the shoes of Steve Jobs, has something against American workers.

But it’s simply not that simple.

In 2013, to great acclaim, Google opened a handset plant in Dallas, where it hoped to employ nearly 4,000 workers, proving once and for all America could compete in high-volume cellphone manufacturing.

Not two years later, the search giant shuttered the site.

Almost all the components used in the various Apple iPhones are made in Japan, Korea, Taiwan or China. For the geographically challenged, that’s an ocean way from the US. Manufacturing is a supply-chain business; no company makes everything themselves. And most of Apple’s suppliers are foreign-owned. Apple is not exactly known for its generosity. Those suppliers won’t be willing to spend the billions it would take to relocate just to keep what in some cases is not much better than break-even business.

Even the unnamed source for the initial Nikkei Asian Review report acknowledges that Foxconn would be hit by a sharp rise — perhaps 50% — in production costs. “Making iPhones in the US means the cost will more than double,” the source said.

The notion, especially, that Taiwanese stalwarts Foxconn and Pegatron would suddenly build giant factories in the US is far-fetched as well. Remember that $40 million investment Foxconn said it would make a couple years ago? Pennsylvania is still waiting.

Indeed, they are likely salivating at the possibility of new US trade barriers, even for a key customer like Apple. Why? Because Apple’s gross profit margin is breaching 40%, while those of their ODM suppliers are around 10% or less. With the design, manufacturing and supply chain knowledge so firmly in the hands of the ODMs, should events conspire to make Apple slide, they are well-positioned to pick up the slack.

 

What Apple’s Latest Supplier Audit Says About Apple

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Apple’s annual supplier audit was released today and sure enough critics on both sides are already picking through the core and going at it over whether the company is doing enough to ensure the safety and compensation of the hundreds of thousands of workers who plug away in anonymity daily making Apple the wealthiest company ever.

Apple’s latest stats show a 92% compliance rate with its 60-hour workweek, and says the average workweek was less than 49 hours. Of course, that’s as it should be: Most of Apple’s supply chain is in China, whose laws cap the work week at 40 hours and monthly overtime at 36 hours. Adding nine hours per week over four weeks per month comes to 36, which means Apple suppliers are likely often breaking the local laws.

Indeed, that’s consistent with a separate study of nearly 100 Pegatron workers undertaken by labor rights group China Labor Watch, a constant thorn in Apple’s side, which found that more than half of the its workforce performs more than 90 hours of overtime per month, with some peaking at 132 hours.

Apple essentially ignores this by trying to turn a lemon into lemonade. It now touts its ban — as of October — on its suppliers’ charging workers to obtain jobs. As Apple senior vice president of operations Jeff Williams writes in the report, “You’ll see that we consistently report suppliers’ violations of our standards. … Because of these audits, over $3.96 million was repaid to foreign contract workers for excessive recruitment fees charged by labor brokers. And nearly $900,000 was paid to workers for unpaid overtime.” Williams says that this is proof that the system is working.

I don’t agree, but not because there are violations. I suspect any multibillion dollar company with operations (or contractors) in as many places that Apple has will encounter similar, if underreported, problems.

No, the reason I don’t agree is because the same subcontractors keep getting caught for the same violations. That shows a decided lack of regard for their major customer’s brand and mandates.

I think Apple is taking the problems seriously, but its supply chain is not. And the chain has no real incentive to change. As such, until Apple starts firing suppliers, the problems of what amounts to indentured servitude at its contractors’ factories will continue unabated.

System Failure

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Apple is front and center today saying the death of a 15-year-old worker at one of its subcontractors was not the result of conditions at the Pegatron factory in Shanghai.

The teenager died of pneumonia, according to news reports. He was employed after using someone else’s ID to get the job.

It’s very sad that this happened. But the truly uncomfortable fact is that the worker was 15.

Apple’s response, as usual, was stiff and unconvincing: “Apple has a long-standing commitment to providing a safe and healthy workplace for every worker in our supply chain, and we have a team working with Pegatron at their facility to ensure that conditions meet our high standards.”

Underage workers continue to gain employment in Chinese factories. Why does this continue to happen there? Is it a failure of management? Is it cultural? And how many others will die before the system is fixed?

 

 

Poison Apple?

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Move over, Foxconn. First Pegatron and now Jabil have joined you on the Apple-watcher hit list.

In June, the New York-based employee rights group known as China Labor Watch singled out three Pegatron sites for worker abuse. The alleged violations are now like a refrain: excessive overtime, harsh working conditions and employment of underage workers.

Today it was Jabil’s turn, as its Green Point unit in Wuxi drew CLW’s ire. Perhaps most concerning is the accusation that Jabil workers must agree to a “list of punishments.” That sounds sickening and demeaning.

The common thread, of course, is Apple, whose corporate standards are apparently more for show than practice.

Chinese law prohibits more than 49 hours of work per week. Yet the CLW report shows 80% of the 80 Jabil workers interviewed put in more than that. While both Apple and many workers claim they want the overtime, the sad truth is they need to work the extra hours in order to make sufficient wages. Yet with Apple sitting on more than $100 billion in cash, it’s illogical to argue that company needs to suppress wages in order to make its iPhones and related products affordable to Western consumers.

Just 18 months ago, then Jabil CEO (and now chairman) Tim Main excoriated Foxconn for its “very abusive policies, employment policies.”

“I think their business will begin to suffer because of the way they treated their employees,” Main told Jabil shareholders. “And you can all be quite comfortable and proud that, you know, that’s not your company. We treat people like human beings like we want to … treat our own kids. So you don’t have to worry about that with us.”

Sadly, CLW’s report says something very different.

At the time of Main’s comments, Apple had just become a 10% customer of Jabil. Now, Apple is estimated to make up 13%, or $2.23 billion, of Jabil’s annual revenue. So like Foxconn and Pegatron, does serving Apple necessarily cost a company its soul?

Correlation is not causation, but the circumstantial evidence is getting mighty difficult to ignore. Will any EMS company be able to resist the temptation of Apple’s poisonous riches?

 

The EMS-to-OEM Transition

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We list more than 2,400 sites on our Directory of Electronics Manufacturing Services Companies. Of  them, I would hazard to say at least 15 to 20% now offer some form of ODM/OEM work.

It’s not always who you’d think, either. While the obvious companies are there — Foxconn, Pegatron, Wistron, Flextronics, etc. — more and more smaller firms are joining the fun. Everyone from Hunter Technology, which builds discrete RF/microwave components in California, to Mikroelektronika, which makes fare boxes in the Czech Republic, are involved in some sort of original design manufacture or outright OEM work.

At some point I’ll sit down and count out the exact number. Suffice it to say, it will be significant. EMS firms never sit still.

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.”