Pegatron

Update: Apple has issued a statement stating that it sent medical experts to investigate and found no link to the boy’s employment. It has not commented on the fact that the worker was under-age, but it has been revealed that he used his 21-year-old cousin’s ID to get the job.

Last month we sent independent medical experts from the U.S. and China to conduct an investigation of the (Pegatron) factory. While they have found no evidence of any link to working conditions there, we realize that is of little comfort to the families who have lost their loved ones.

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.

Original story:

China Labor Watch says Pegatron has failed to properly explain the deaths of five young workers at a factory making the iPhone 5c, including one who was found to be just 15 years old, reports the Sydney Morning Herald.

Pegatron, the Taiwanese manufacturer that employed him, said the workplace environment at the Shanghai plant was not the cause of his illness. But a spokeswoman acknowledged that several other young workers at the factory had also died in the past few months […]

“Considering the sudden deaths of five people and the similar reason of the deaths, we believe there should be some relations between the tragedy and the working conditions in the factory,” said Li Qiang, who runs China Labor Watch … 
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The Wall Street Journal is reporting that Apple is cutting component orders for the iPhone 5c by up to a third, reiterating the news that Apple is curtailing iPhone 5c production. This backs up a multitude of reports by industry analysts, which said that iPhone 5c demand is weaker than Apple’s initial expectations.

Apple told its Taiwanese assemblers Pegatron Corp. and Hon Hai Precision Industry Co. that shipments of the iPhone 5C in the fourth quarter would be cut, the people said. Pegatron, which analysts say assembles two thirds of the iPhone 5Cs, was told orders would be cut by less than 20%, said a person familiar with the matter. Hon Hai, which assembles the remaining low-cost iPhones, was told orders would be cut by a third, said two people familiar with the matter.

In the past, Apple CEO Tim Cook has cautioned against supplier shipments analysis as an indicator of sales performance, saying that Apple sources components from multiple manufacturers. However, the sheer number of independent reports about cuts to iPhone 5c suggests there is some underlying truth to the story. On the flip side, iPhone 5s sales seem to be booming, doing better than predicted.

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An analyst note from a usually reliable Ming-Chi Kuo (郭明錤) seemingly confirms our expectation that Apple will not announce new iPads on September 10th, but at a separate event later in the year.

The note makes supply chain forecasts suggesting that assembly production of the iPad 5 and iPad Mini 2 will start with low-volume production this month, and enter mass-production in the final quarter. If the tablets were to be announced on September 10th, we would expect them to be much further along the production cycle by now.

As expected, both iPad models are said to use the A7X processor, which should see be a particularly noticeable improvement on the existing A5-based Mini.

There were a couple of surprises in the note … 
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A quality control employee at Pegatron posted the picture above to her Weibo profile (gone now), appearing to show a large amount of iPhone 5Cs in testing mode, as noted by Nowhereelse/Engadget. The following quote was attached to the image:

“The low-end iPhone 5C to be launched for Chinese consumers in September doesn’t look much different than the Xiaomi Phone 2, right?”

It’s odd that the manufacturer does not have a better setup for testing the devices, but Engadget notes that this kind of testing setup has been seen before during factory tours.

The phone looks the same as other leaked components and mockups, and we expect it to be announced by Apple at their September 10th event.
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Photo of Beijing Apple Store: news.cn

Apple appears to be preparing for increased focus on the Chinese market, with more than 200 (mostly) senior job openings appearing on LinkedIn, reports the WSJ. Some of these were added in the past three weeks, many within the last few days. Digitimes reported yesterday on Apple also seeking senior engineers in Taiwan.

With the developed market close to saturation point, the BRIC markets – Brazil, Russia, India and China – are key to Apple’s future expansion. Worldwide, smartphones represent only just over half of the total cellphone market, generating massive potential for future growth.

Apple’s challenge in China is as much a political one as it is marketing-based … 
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Photo: vr-zone.net

Apple supplier Pegatron is forecasting up to a 50 percent growth in its Q3 revenues despite its PC business continuing to decline, with the bulk of this growth likely to come from the iPhone, reports Reuters. Pegatron made the announcement after failing to hit analyst expectations in Q2.

“We expect revenue in the non-computing segment to grow by 40 to 50 percent in Q3 due to new consumer products. Q4 will also be higher,” said company CEO and President Jason Cheng in an investor conference.

Pegatron has been pretty much confirmed as making the iPhone 5C – the plastic iPhone – with some Digitimes-based rumors suggesting it may also be a secondary supplier for the 5S, whose production is being led by Foxconn. Both handsets are expected to be announced by Apple on 10th September … 
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According to an upcoming report from the China Labor Watch, outlined by the Wall Street Journal, Apple’s China-based manufacturing partner Pegatron has come under fire for worker conditions. The report outlines several claims which shed a negative light on Pegatron:

• Pegatron is claimed to be withholding worker IDs. This means that Pegatron employees are unable to work elsewhere because they lack proper identification.
• The company is also claimed to be providing “poor living conditions” with “30-minute waits to enter their production facility, tight living quarters, and packed cafeterias.” Cold showers and packed dorms are also noted.
• Workers are claimed to be working over 60 hours a week (Apple’s limit), while Apple’s June Supplier Responsibility paper points to a 46-hour work-week average for Pegatron employees.
• At a Pegatron subsidiary, employees are said to be provided gloves that do not sufficiently protect from the materials used to create metal backplates for the iPad.

As for pay, the report claims that some workers are seeing their payment withheld. Within this issue, recruiting companies for Pegatron have come under fire for not paying the workers enough. These recruiting companies, in some situations, are even fining employees:

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Yesterday we decided not to run with a story published by Bloomberg that Pegatron’s forecasted 25 percent to 30 percent drop for second-quarter revenue was due to “falling iPad mini demand.” It seemed a little far fetched that an Apple supplier would be giving up specific information on product demand, something we know suppliers in Apple’s circle typically remain tight-lipped on. Today CEO of Pegatron Jason Cheng has confirmed our suspicions in an email to Fortune claiming that Bloomberg reporter Tim Culpan made the iPad mini angle up.

While quoting an analyst’s expectations for iPad mini demand in Q2, Bloomberg’s Tim Culpan offered the following quote from Pegatron Chief Executive Officer Jason Cheng as proof:

A decline in revenue from the iPad Mini “is more on demand, while price has been stable. Not just tablets, also e-books and games consoles, almost every item is moving in a negative direction.”

Pegatron chief Jason Cheng says he wasn’t referring to iPad mini specifically, but rather all of its products including all tablets and game consoles, while noting that “clearly refused” to answer Culpan’s questions related to specific products. Here’s what he had to say about the Bloomberg piece:
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The ever-sketchy DigiTimes does not have the best reputation when it comes to predicting Apple product launches, but today the publication is reporting Apple OEM Pegatron began receiving orders for a new iPhone and a next-generation 10-inch iPad. It also reported Apple plans to release a 7-inch iPad in August:

Pegatron Technology reportedly has landed orders for a new-generation iPhone to be launched in September and a 10-inch iPad to be launched in the fourth quarter, according to Taiwan-based supply chain makers. Pegatron is currently an OEM for the iPhone 4S and new iPad… A 7-inch iPad, which reportedly will be released in August, will be manufactured by Foxconn Electronics (Hon Hai Precision Industry).

With the release of Apple’s new iPad last March, we find it hard to imagine Apple plans to break its yearly release window with a new 10-inch iPad, in addition to a 7-inch variant in August. We heard many rumors lately about a 7-inch or 7.85-inch tablet, indicating Apple could be experimenting with smaller screen sizes. In April, a translated report from a Chinese publication claimed Apple was prepping 7.85-inch iPad minis to launch in Q3 for $250 to $300, but we have not heard anything concrete on Apple’s plans to release a 7-inch tablet. As for iPhone, we are still expecting an October launch at this point.

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[youtube=http://www.youtube.com/watch?feature=player_embedded&v=E5odytJoYmo#!]

The results of the Fair Labor Association’s investigation into Apple’s suppliers beginning with three Foxconn facilities officially published yesterday. While finding excessive working hours and many violations of Chinese labor law, Foxconn and Apple agreed to reduce workweek and overtime hours within Chinese law to 49 hours per week and 36 overtime hours per month based on the FLA’s recommendations. Foxconn will also hire tens of thousands of new employees and implement a compensation package to make sure workers’ salaries remain the same amid reduced working hours.

In the interview above with Reuters, head of the FLA Auret van Heerden talked about the investigation and noted the agreement could set a new standard for working conditions throughout China. One unanswered question is whether the agreement will lead to higher prices for consumers (which is not necessarily a bad thing)…

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With Apple currently allowing the Fair Labor Association to inspect the working conditions of its supply chains abroad, a new report from NPR profiled 25 of the 59 workers injured in an explosion at the Pegatron iPad factory in Shanghai, China last December (audio here – MP3). The explosion was attributed to a build-up of aluminum particles. According to Pegatron, it started in the machinery meant to collect the dust. Today’s report from NPR gives us a look into the conditions of the Shanghai plant before, during, and after the explosion from the eyes of workers.

A similar explosion months before in May at a Foxconn factory in Chengdu was the focus of The New York Times’ recent story sparking controversy over Apple’s suppliers. Zhang Qing explained to NPR that Apple inspected the Shanghai factory just hours before the explosion:

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Apple’s contract manufacturer Pegatron Technology of Taiwan is unaware of any forthcoming labor inspections at its Asian plants because its client has not officially tipped them about labor audits, according to Chief Financial Officer Charles Lin tells to Bloomberg. Lin was reacting to yesterday’s announcement by Apple of California that the first audits in cooperation with the Fair Labor Association have started at Foxconn City in Shenzhen, China.

Pegatron Corp., a maker of Apple Inc.’s iPhones, said it hasn’t been informed of any pending inspections of factory work conditions by labor groups, a day after the U.S. company said checks would start this spring. Pegatron is aware of Apple’s corporate social responsibility policies, Charles Lin, chief financial officer of the Taipei-based company, said by telephone today. The client hasn’t informed him about any upcoming audits, Lin said.

Apple previously confirmed that audits at Pegatron and Quanta Computer, the company assembling Mac notebooks, are due this spring. The company said the results of FLA audits will be made available on its website at the end of March. In the wake of the Foxconn scandal, a month ago Apple became the first technology company admitted to the FLA. That announcement followed Apple’s release of 2012 Supplier Responsibility Report that for the first time named 156 companies currently supplying components for Apple products, which left only three percent of suppliers absent from the list.

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The high-profile Apple business with Asian contract manufacturer Pegatron Technology is facing scrutiny as the iPhone-maker is reportedly exercising its supply chain influence by asking Pegatron to drop new Ultrabook orders from Asustek or else it will lose orders for iOS devices. According to today’s article in Chinese-language Commercial Times, the similarities between Apple’s MacBook Air and Asustek’s Zenbook (released last year) instigated the Cupertino, Calif.-based firm to demand that Pegatron choose sides. As you know, the unique unibody metal enclosure of Apple’s notebooks is manufactured by Catcher Technology.

Pegatron currently assembles Asustek’s ultra-thin Zenbook family, but it will stop doing so by the end of March. As a result, Asustek will have to outsource the Zenbooks to either Compal Electronics or Wistron. Pegatron only recently landed iPhone orders and is hoping to assemble iPads, too. The Japanese blog Macotakara reported last month that Pegatron and Foxconn began assembly of iPad 3 for an early-March launch.

Even though the initial batch of Ultrabooks largely disappointed, upcoming models are looking to close the gap with lower prices and a unibody construction. Chinese-language Apple Daily reported in January (via DigiTimes) that Pegatron landed orders for at least five Ultrabooks by second-tier brands set to ship in April or May. One tiny interesting bit: Pegatron is an Asustek spin-off that happens to make Ultrabooks for other vendors, too.

Apple’s MacBook Air (left) and Asustek’s Zenbook (right). Image vie Ecoustics.com

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Following the release of Apple’s “2012 Supplier Responsibility Report,” Apple announced it would be the first technology company admitted to the Fair Labor Association. The FLA will “independently assess facilities in Apple’s supply chain,” and then publish its independent findings online. Apple announced through a press release today that the first audits have officially started with FLA President Auret van Heerden and his team beginning inspections at Foxconn City in Shenzhen. Apple CEO Tim Cook said the audits are “unprecedented in the electronics industry”:
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