Foxconn

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After the NYTimes exposé and Tim Cook’s response, the question remains: Why is the media focusing on Apple and not questioning any of the other electronics companies that manufacture with Foxconn in China?

Obviously, Apple has the money, the brand, the prestige, and it grabs attention. However, it is not like Apple can make gold from straw. Apple simply cannot build its products anywhere other than China.

On the flip side, @NicePaul takes recent Forbes numbers and creates the following infographic that illustrates the opposite point:

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We heard earlier today that the next iPhone may have a bigger screen which could make the chassis slightly bigger.  How do you feel about this?  What size would you prefer?

Unsure? Check here (via Tim Bray).
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The NY Times just published an absolutely fascinating piece on Apple and why it builds almost all of its stuff in China. Go read it.  Clearly some of our politicians could learn a lot from it.

The short of it is that companies like Apple simply cannot manufacture products in the United States.  The cost (though it is cheaper in China) is not the reason, however.  Years ago, the Chinese government subsidized building cities of factories that can hire 3,000 workers to live in a dorm per day —or 8,700 Industrial Engineers in two weeks (it would take 9 months to do this in the U.S.).  Today’s gadgets require thousands of little parts that are all made in the same areas.  This whole global supply chain cannot be moved to the U.S.

The most interesting tale might have been the last minute decision to make the iPhone’s display glass:

In 2007, a little over a month before the iPhone was scheduled to appear in stores, Mr. Jobs beckoned a handful of lieutenants into an office. For weeks, he had been carrying a prototype of the device in his pocket.

Mr. Jobs angrily held up his iPhone, angling it so everyone could see the dozens of tiny scratches marring its plastic screen, according to someone who attended the meeting. He then pulled his keys from his jeans.

People will carry this phone in their pocket, he said. People also carry their keys in their pocket. “I won’t sell a product that gets scratched,” he said tensely. The only solution was using unscratchable glass instead. “I want a glass screen, and I want it perfect in six weeks.”

After one executive left that meeting, he booked a flight to Shenzhen, China. If Mr. Jobs wanted perfect, there was nowhere else to go.

 New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

For over two years, the company had been working on a project — code-named Purple 2 — that presented the same questions at every turn: how do you completely reimagine the cellphone? And how do you design it at the highest quality — with an unscratchable screen, for instance — while also ensuring that millions can be manufactured quickly and inexpensively enough to earn a significant profit?

Other notable tidbits:
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[youtube=http://www.youtube.com/watch?v=8-fU-knxT0U&t=1h1m55s&start=3720]

Apple received a mention in a big way during CNN’s Southern Republican Presidential Debate held yesterday at the North Charleston Coliseum in South Carolina. The debate featured Republican Presidential candidates Mitt Romney, Newt Gingrich, Ron Paul, and Rick Santorum. At one point (mark 1:01:55), CNN host John King asked the candidates in the light of the ongoing Foxconn controversy to lay out their plans to bring back manufacturing jobs to the United States.

More precisely, King zeroed in on the fact that Apple is “a breathtakingly important American company” that employs most of its workforce in retail stores, but hires half a million low-paid workers through its Far East suppliers and contract manufacturers that actually assemble its products (just like any other technology company does, mind you). Santorum has “a plan in place” to put this strategy to an end (quote right below the fold), as do other candidates. They also talked SOPA and discussed other burning issues. Just watch the clip…

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Earlier this week, Apple pledged to let the Fair Labor Association access its suppliers’ facilities to monitor working conditions. Even though Apple is the first technology company admitted to the FLA, the snowballing issue of harsh conditions at Far East plants will not go away with the announcement. Quite the contrary, the problem has escalated and gone mainstream, with both The Daily Show and This American Life focusing on the grim reality of earning a living at Foxconn-operated sweatshops in China.

Jon Stewart, The Daily Show host and chief satirist, remarked in an episode yesterday:

By creating a convenient ecosystem, China’s Foxconn draws in employees who earn 31 cents an hour working for 35 hours straight, thereby saving American companies money.

As you know, Foxconn (also known as Hon Hai Precision Industry) is Apple’s favorite contract manufacturer, it but also produces gadgets for Amazon, Microsoft, HP, Dell and a variety of other brands. With that said, both shows tackle larger issues that affect just about every electronics manufacturer. The last week’s episode of This American Life, the popular radio program, weighed in as well. You can listen to their free audio stream here.

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According to the Japanese blog Macotakara (which can be accurate with Apple rumor reporting), Apple’s contract manufacturers Foxconn Electronics (also known as Hon Hai Precision Industry) and Pegatron Technology have issued orders to begin assembly of next-generation iPads for an early-March launch.

The report is based on unnamed Chinese sources, and it noted the iPad 3 will look virtually identical to iPad 2 while featuring the same hardware button configuration, shape of the dock connector and  position of the two cameras. Even the Smart Cover will work with iPad 3; although, tipsters mentioned magnets will be placed in a “different position.”  Some form fitting cases may not work, however, as the device is slightly thicker, probably to accommodate added parts.

Such a description validates yesterday’s iLounge story based on editor Jeremy Horwitz’s alleged hands-on experience with an iPad 3 prototype that he said is focused on internal changes rather than chassis redesign. Macotakara also noted that Sharp would provide panels for the device that sport a 2048-by-1536-pixel resolution. This is in line with earlier reports by DigiTimes and the Wall Street Journal.

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Since CNET posted the iPhone 5 story this weekend…

…the iPhone 5 is a “complete redesign. This is a very large project that Steve dedicated all of his time to. He was not that involved in the 4S because his time was limited.”

…we thought it would be a good time to tell you what our sources think happened to the iPhone 5 that some were expecting. We’ve heard from Foxconn managers as well as Apple employees and carrier partners on this and have tried to piece together the full story.

The iPhone 4S as you see it was originally planned to be released at WWDC with iOS 5, like every iPhone before it.

But something happened around February of this year that threw everything off. Apple was still integrating the Siri team and code into iOS and it was going much slower than planned. In February, Apple knew they weren’t going to be able to get an iOS 5 Beta to developers in April and they sure weren’t going to have a stable version by WWDC. They would be lucky to get a final version of Siri into customers’ hands by the holiday shopping season (Siri is currently in Beta in three languages).

At the same time, Apple’s iPhone 5 (teardrop) plans were moving along on or ahead of schedule and the first prototypes were testing well. CNET says that Steve Jobs was overseeing this project which sounds about right.

With mid-October being the earliest possible date of a Siri-fied iOS being ready – with “Apple-levels” of polish –Apple had to look at its options. Would they release the iPhone 4S at WWDC with a modified version of iOS 4? Without Siri and the other iOS 5 improvements, the update might have seemed a little bland to the average customer.

Instead Apple chose a different route.

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We passed up the New York Times iPhone story earlier because it didn’t really contain any new product information. We’ve been hearing early October for awhile now in terms of when the iPhone gets released.  Therefore, the announcement in ‘weeks’ isn’t news either.

Neither is the 8MP camera which I was on hand to hear Sony CEO Howard Stringer reveal earlier this year.  Nor the A5 processor which isn’t even a small stretch.  And the best bit:

two people with knowledge of the inner workings of Apple’s next-generation iPhones say either the iPhone 5 or iPhone 6 will include a new chip that is made by Qualcomm.

Helpful.

But here’s some real info: We’ve heard that there are indeed two different models of iPhone coming out next month (announced this month?)  We still think October 7th is the scheduled release date give or take any delays.  We’ve heard the low-end model, which is essentially an iPhone 4 look-alike (glass front and back), is rolling off the assembly line in big numbers right now.  Apple expects to have 10+ million of these things on hand for launch and full ramped production into the holiday shopping season.  These will be priced aggressively and be everywhere.

They will also be offered in both prepaid and post paid plans (this is a big deal – more to come on that).

But there is some bad news…
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A new report from Taiwan Economic News claims Apple’s main supplier Foxconn has significantly upped its iPad 2 shipment estimates from 14 million to  20 million units for Q3. The report notes this marks a significant “42.8% increase from its original projection” made in July. This confirms previous reports for third quarter estimates we told you about last week.

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TmoNews thinks it scooped a possible evidence that Apple will be announcing its next iPhone in about two weeks time. The site cites “a huge number of emails” they received, which apparently mention “that T-Mobile has called an “All Hands Day” meeting for September 24th for unknown reasons”. September 24 is a Saturday, ruling out the possibility of an Apple media event that day. It could be also just T-Mobile prepping for another product arrival, such as the Galaxy S II, or some non-Apple related marketing and sales initiative. Also, Boy Genius Report offers that the memo actually refers to a high-volume day, which does not compute since iPhone 5 is not expected to hit stores before October.

On the other hand, 9to5Mac heard that Apple could begin accepting pre-orders for the next iPhone as early as Friday, September 30. If T-Mobile USA gets the handset, as rumored, they would want to brief employees at least a week before pre-orders start. And T-Mobile holding a meeting on Saturday, September 24, could mean an Apple media event earlier that week, in which case invites should be sent out sometime in the next week or so.
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Somewhere in China there are stacks of millions of completed iPhone 5s.

Digitimes is reporting that iPhone 5 production is at full swing with 150,000 of the devices being produced per day. That isn’t quite the “volume” production level that Apple expects as it gets ready to release its phone for the holiday shopping season, however.

Lens maker Largan Precision, touch panel maker TPK Holding, reinforced glass supplier G-Tech Optoelectronics and battery vendors Simplo and Dynapack are all operating at full swing currently, the sources indicated.

We’ve also heard recently that these iPhones aren’t being boxed up just yet as Apple is finalizing the iOS 5 build that will eventually go on these iPhones.

Shipments of iPhone 5 from the supply chain are expected to reach 5-6 million in September but will then ramp up to over 22 million units in the fourth quarter as suppliers will ship fewer iPhone 4 and CDMA-version iPhones during the final quarter of the year, noted the sources.

Apple’s other manufacturing partner, Pegatron, is said to be holding off on production until 2012 and is expected to only build 15% of the devices overall.

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Interesting that Hon Hai Precision Industry, better known as Foxconn, issued a statement regarding Steve Jobs’ resignation from his CEO post at Apple. The Asian company wrote in a short email statement to Bloomberg:

Foxconn wishes Steve Jobs will get well. We think Tim Cook has shown good work as stand- in CEO during Jobs’s absences and expect Apple will perform well in the future. The relationship between Cook and Foxconn has been very close and we expect that the relationship will become even closer in future.

Asian companies are traditionally tight-lipped and shy away from commenting on their partners’ business dealings so it’s a bit surprising Foxconn would put out a statement, let alone touch on the subject of Steve Jobs well-being. On the other hand, Foxconn is Apple’s largest contract manufacturer and as such has been instrumental in  ramping up manufacturing to meet the growing demand for Apple’s gadgets around the globe.
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Digitimes is reporting Apple has turned to manufacturers other than LG Display (specifically Samsung and Chimei Innolux) due to issues with the 9.7-inch panel they’ve been producing for the iPad 2. Apparently LGD was not only unable to meet its July orders by approximately 1 million units, but also failed to meet Apple’s requirements in impact tests.

Due to the manufacturing issues with LGD, Digitimes reports they have now turned to alternate supplier (and rivals in the tablet market) Samsung. However, this may be only a temporary solution to the supply problems, as the report is quick to point out Samsung is directly competing with the iPad 2 with their Galaxy Tab 10.1 (the same device Apple just received a preliminary injunction for to halt sales in the EU).

According to the report:

“Samsung’s Galaxy Tab has head-on competition with the Apple iPad 2 in the end market. This would prevent Apple from sourcing more panels from Samsung.”

This might be an indication that Apple is focused on transitioning away from Android-related manufactures, if for no other reason, simply to avoid having to rely on their competition to supply vital components. Doesn’t look like LG’s  $500 million display deal with Apple will be getting extended anytime soon, and a recent lawsuit launched against Apple (linked back to LG) certainly doesn’t help either.

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Foxconn’s founder and chariman Terry Gou said the company will replace an unspecified amount workers with one million robots in three years. Foxconn is the Asian manufacturer that is responsible for many components inside of Apple, Sony, and Nokia’s devices. Currently, the company has 10,000 robots and will expand to 300,000 next year, gradually opening the door to a total of one million robots in three years.

One interesting aspect of a robotized workforce is that it makes places with more expensive workers more competitive.

The robots will be used to accomplish basic tasks like spraying, wielding, and assembling. Foxconn currently employs 1.2 million people, therefore one million robots could potentially be a big hit on employment in China.
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Taiwanese trade publication DigiTimes quotes unnamed industry sources who claim Foxconn, the world’s largest contract manufacturer for gadgets, will produce a rumored Android-driven tablet from Amazon, said to sport a 10.1-inch display, with shipments to begin in 2012 at the earnest. Quanta Computer, another contract manufacturer from Asia, has already begun shipping a smaller seven-inch device to Amazon, the report notes:

Foxconn Electronics (Hon Hai Precision Industry) has reportedly landed orders for 10.1-inch tablet PCs from Amazon with shipments to begin in 2012, while Quanta Computer has begun shipping a 7-inch model to Amazon. Foxconn declined to comment on market speculation.

Foxconn of course is Apple’s long-time manufacturer so it comes as a surprise that Apple did not exercise its influence and billions to block rivals from tapping Foxconn’s manufacturing potentials. That’s not entirely unheard of, however…

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Hot on the heels of reports that claim Apple is gearing up to launch a new iPad model this fall, Digitimes reports that Apple will be adding a second manufacture to augment the tablet’s current manufacturing from Foxconn. Foxconn is currently Apple’s exclusive contractor for iPad 2 production and since the plant’s devastating incident in May and with a new tablet right around the corner, Apple is looking for a second manufacture to build their popular tablets.

According to the report, Apple’s second iPad manufacture will either be Pegatron or Quanta Computers. Pegatron, notably manufactures the Verizon iPhone and reportedly landed 15 million iPhone 5 orders for a fall release. Quanta manufactures some Macs and other Apple products. With Apple reportedly gearing up to launch a new iPad 2 model – dubbed iPad HD by This is my next – now is a perfect time for Apple to use more manufacturing power.

The ‘iPad HD’ is expected to be a professional-minded tablet from Apple with a 2048 x 1536 Retina Display. Artwork of this high resolution has already appeared in iOS 5 exclusive SDKframework files and has been a long-rumored feature for the tablet family. This new iPad is pegged at being another iPad model, not the iPad 3.

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The Chinese Economic Daily News via Bloomberg reports that Foxconn plans on spending NT$47B to build stores in China which will sell Apple products, which of course it also produces.  The information was relayed by the unit’s Chairman Steve Chang.

Back in January, we reported:

Foxconn subsidiary Cybermart has been granted retail permission from Apple and will begin selling Apple products in April of this year. Cybermart currently has 34 stores across the Greater China area, with 7-8 more stores planned for 2011. The report also states that Cybermast is planning to open as many as 500 stores, that will retail Apple products, in the future.

Foxconn is becoming a pretty powerful player in Apple’s fortunes in China and the world.

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The WSJ reports on the next generation iPhone due this fall:

According to some suppliers of components to Apple, the new version of the iPhone is expected to be thinner and lighter than the iPhone 4 and sport an 8-megapixel camera. One person said the new iPhone will operate on Qualcomm Inc.’s wireless baseband chips. The current iPhone 4 uses memory chips made by Samsung Electronics Co. and baseband chips from German chip maker Infineon Technologies AG, according to a report by market-research firm iSuppli Corp.

Verizon execs have already said the next iPhone will be a GSM/CDMA world phone – which means it is likely that it will use Qualcomm’s Gobi chips (As the current Verizon iPhone and iPad currently do).  Numerous reports have also said it will contain a 8megapixel camera – from Sony and other manufacturers.

There is some question about whether or not these devices will meet production deadlines, however…

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Originally planned for late July, the Brazilian Minister of Science and Technology, Aloizio Mercadante told Globo that iPad production would being in Brazil later this Fall at Foxconn’s new plant outside of São Paulo. Roughly machine translated:

“The handle access to the company, which would be used to drain the production plant in Jundiaí (SP), was not ready in time, due to construction delays.In addition, there is a shortage of skilled labor in the country.The company has hired 175 engineers, who had to send them to China where they are doing stage.The company, however, need more than 200 engineers to the sector, “said the minister.

One reason for the additional factories? A 40% reduction in consumer costs, according to the post.  Not because the iPad is cheaper to make (though it could be) but the government won’t levy taxes on domestically produced products.

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Besides the extremely unfortunate loss of life, Bloomberg posts a dire scenario on iPad production laid out by IHS iSuppli this evening:

The drop in manufacturing will depend on how long the plant is closed following a May 20 explosion that killed three people and injured at least 15, according to ISuppli. The total could be even greater if the suspension of operations at the facility lasts longer than a month, the firm said.

Another Foxconn factory in Shenzhen that produces iPads may not be able to make up for the lost output, ISuppli said. The manufacturing breakdown may lead Apple to miss ISuppli’s forecast of 7.4 million iPad 2 shipments in the quarter ending in June, the El Segundo, California-based research firm said.

Not all analysts are as down with Apple Bull Shaw Wu saying there may not be cause to worry.  He said in a report today that the concerns are “overdone” and that production at other facilities is being ramped up to make up for the shortfalls. He expects Apple to sell 6.8 million iPads in the June quarter.

Related articles

• Foxconn closes all of its electronic parts polishing workshops for 2 days (9to5mac.com)
• The Foxconn explosion might affect up to one third of total iPad 2 output (9to5mac.com)
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scene from Foxconn explosion

According to the WSJ, Foxconn has suspended production across many of its plants in China for two days while the government investigates the explosion that killed three people and injured many more.

Hon Hai Precision Industry Co., a Taiwan-based company better known by the trade name Foxconn that operates dozens of factories across China, said it closed all of its workshops that handle polishing for electronic parts and products pending further inspections.

At issue appears to be the flammable aluminum dust that comes from polishing parts like the iPad 2’s aluminum back.  A student group out of Hong Kong called Sacom published a report on the dangers of flammable airborne aluminum dust in a report on May 6, saying workers complained about inhaling the dust and about poor ventilation. It isn’t clear whether the workshops referred to in Sacom’s report include the site of the accident.

The news is another setback for Foxconn, which is barely past a recent outbreak of public suicides.

Should the Chengdu production capacity not be restored anytime soon, Hon Hai may have to hire more expensive labor in Shenzhen, said Arthur Hsieh, an analyst at UBS.

While Foxconn has dominated the contract manufacturing industry until now, analysts say Hon Hai competitors like Singapore’s Flextronics Inc. and Taiwan’s Quanta Computer Inc. could try to woo some of its customers, including Apple.

The prospective plant closures and their affect on Apple’s iPad were assessed by Digitimes earlier today. 
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