burn0050, I feel your angst. As much as it might be nice to have an iPad, I have refused to buy one. I also don't own an iPhone. I do have an early edition iPod, which an Apple employee at an iStore once told me they wouldn't service because it was so old!
In other words, I have moments when I think Apple's products are overpriced. The company gets extra dollar for the "goodwill" its products generate and for the perceived "quality" as well as the other thing analysts are crazy about -- the ecosystem. Of course, some of this is hogwash but people have bought into it.
Will Apple readily give this up in the new environment where bashing the company has suddenly become "cool"? I doubt it. Although I agree its margins are hefty and it can easily absorb the extra cost of the Foxconn wage hikes and other supply chain makeover it is implementing, it may be difficult for Apple to change its old ways of pushing costs onto its suppliers and extracting the most value from customers.
@Bolaji: Given the time that it would take to disengage from Foxconn--anywhere between 3 and 5 quarters by some estimates -- and find a new partner (4 to 8 quarters) I would expect Apple to weigh the pros and cons. I think Foxconn will ask its OEM customers--including Apple--to pay more. In the end, I think Apple will stick with its partner and pass costs on to end-customers. They are a business, and that's what's in the best interest of Apple shareholders.
People of conscience consideer the social and ethical consequences of their buying practices, even if it means paying extra, or sometimes doing without a product. During Apartheid ethical people boycotted South African products, and while Jack Welsh was Chief of GE I wouldn't buy a light bulb from them to keep from falling down the stairs. I would much rather pay a bit more for an Apple product made under fair and safe labor conditions than to know my purchase was making workers sick and miserable. This is especially true since most Apple products are far from necessities.
Frankly, it should be Apple's cross to bear. Their products carry a profit margin of anywhere from 20-50%. I think they can afford to take a hit in the manufacturing costs to help fix some unfair labor practices. While we own several Apple products, their cost tactics have always infuriated me.
The upsell on their devices has always been memory. But the markup is RIDICULOUS. To go from 16Gb to 32Gb on a phone is an extra $100, while their cost is probably $5 (or less). A consumer can buy a 16Gb SD card for $15 (or less). Upsell something else that's worth the money. But, that would cut into those HUGE profit margins for them. The company was built on the ego of Steve Jobs (rest his soul), and its prices match. For him, I think, it was more about the product being elite - so he charged more, not because of a profit margin (read his biography, it's not about the money - although I doubt that didn't play a part).
Barbara, Considering how slim margins are at EMS what do you think will happen when contracts come up for renewal between Apple and Foxconn? It's certainly unaceptable to ask the EMS provider to add to its costs without getting reimbursed.
Hospice, The chances for Foxconn to bear the entire cost is slim. It may for the current contract but once the contract is ready for renewal the discussion with Apple will have to include spreading the cost.
@Hospice: I doubt the wage increases will be passed on only to Apple. OEMs have a pretty good idea of what their competitors are doing, so Foxconn will not be able to keep that secret. Can you imagine what would happen if Foxconn raises it rates with Apple, but not with Dell? If Foxconn passes labor costs on to customers, it will be for all customers.
What is more likely is that Foxconn will find another way to make up the difference. Foxconn probably gets huge volume discounts from suppliers on components it uses across its customer base. It could start ratcheting up those prices. Or, it could negotiate a better discount and not pass the savings on to customers. This is pretty common with the EMS industry.
There are even more underhanded ways, such as substituting a cheaper part for the one on the AVL and hoping the OEM doesn't notice. I'm not saying that Foxconn does this, but it does happen. I know of a distributor that had to tell a supplier its product didn't make it on to a printed circuit board. Needless to say, the supplier was livid.
Unfortunately, with an operation as big as Foxconn's, a lot of things can be overlooked. Look at long it took for its labor practices to be flagged.
Increased wages and better working conditions doesn't mean that chinese factory workers will become rich overnight. But the morality in all that story is that those workers will not be denying their rights anymore. But they will have to accept things to change gradually.
Apple will not survive without its suppliers. It is more likely that Foxconn will have to bear most of the costs, but the company will/can find a way to make Apple share some of the costs as well.
Elredge, Determining this is difficult, though not impossible. Companies typically don't break out wages so to get a range of what cost of goods sold (COGS) breaks out into one might have to look at inventory numbers on the balance sheet and figure out beginning and end inventory per quarter then guess or track back to what might be the labor portion in the COGs or in the SG&A (selling, general and administrative) costs.
Foxconn does not report COGS and the inventory numbers it report represent only a fraction of its sales, which means it would be extremely difficult figuring this out. Notwithstanding what analysts say, Foxconn isn't about to break out the impact of this wage increases on its operations.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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