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Apple’s Latest Supply Chain Headache: Foxconn

Wow. If the rumors are true, this could represent an epic electronic supply-chain fail.

Multiple publications, including two translated from the original Chinese (the China Times and China Business), are reporting that Apple has returned 5 to 8 million iPhones to Foxconn for unknown manufacturing defects.

The reports indicate that the repairs will cost Foxconn about 200 yuan, or $32, per device, which could add up to as much as $259 million in repair costs. By contrast, one of the biggest electronics repair issues in the early 1990s — Intel's floating-point divide bug problem — cost the microprocessor giant about $400 million in charges.

It's not known what model or models of iPhones are affected. According to MacRumors:

The iPhone 5 suffered from quality control issues following its launch, with a number of customers complaining of scratches and other issues with their devices even right out of the box. Foxconn executives acknowledged that the iPhone 5 was a difficult device to assemble, with increased quality control standards contributing to production output below the company's goals.

The Register reports that “the impact of 8 million phones failing to appear would punch a two- or three-week hold in Apple's supply chain.

A separate report from Business Insider Australia quotes Barclays analysts as saying Apple is losing some key, trusted executives at Foxconn.

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11 comments on “Apple’s Latest Supply Chain Headache: Foxconn

  1. Eldredge
    April 23, 2013

    Who knows if the rumors are true, but the cost and the issue decribed both make sense. One of the scary thinga about mass production is this type of issue – where a defective product is mass produced before the fault is discovered.

  2. Wale Bakare
    April 23, 2013

    It's neither iPhone 3 nor 4 series probably later produce – iPhone 5.

  3. Himanshugupta
    April 24, 2013

    This is probably headache for Foxconn as they are already supplying to Apple at a thin profit margin and now they have to spend close to 260 million USD for repair. But delivering millions of defective iPhones without anyone raising concerns at QC is really something. What were these guyz thinking!

  4. Mr. Roques
    April 24, 2013

    The biggest supply chain headache is itself. With such fast paced changes, everyone in the supply chain has to adapt as fast as possible. And the finished product is only as good as the worst part.

  5. Eldredge
    April 24, 2013

    @Mr.Roques – Good point. Compounding that, the desire to get sufficient volume to the marketplace to meet demand contributes to large quantities of product being built before flaws are detected. If a defect is introduced part way through the process, the challenege becomes one of determning which product needs to be recalled, and which does not.

  6. HM
    April 25, 2013

    chinese electronic market or also general market is known for fake and duplicates. any one who has a dependancy on manufacturing in china is well aware of the risk they are taking. just an example i saw an auto rickhaw driver with brand new samsung galaxy phone with box and i asked so you have samsung galaxy..he said no its from china the fake model…

    Apple is probably well aware of Foxconn's issues. But yes if that supply chain fails its a big risk.

     

  7. Taimoor Zubar
    April 25, 2013

    Such a huge number of defects and rework may create a shortage in the market and drastically affect Apple's supply chain. Normally companies these days do not keep enough buffer inventories to handle uncertain situations like these and this incident may very well cause Apple to have excess demand in the market to fulfill. If it doesn't fulfill that in time, those consumers might go away to Android-based phones.

  8. Taimoor Zubar
    April 25, 2013

    @Himanshugupta: I think what's surprising here is that this is occurring after the fact that Apple has been working with Foxconn for over almost a decade now and they've successfully worked on all the previous versions of iPhone. Foxconn does need to act wisely here to prevent losing their competitive edge.

  9. FLYINGSCOT
    April 25, 2013

    If these phones are manufactured and then need remanufactures will they still be sold as new? As you may have experienced Apple phones are never the same once the case has been cracked open due to the glue construction techniques etc. 

  10. Brian Fuller
    April 25, 2013

    I haven't come across any fresh information, but I would suspect that because Foxconn's the original assembler, they'll come back out onto the market as if they were new. 

     

  11. HM
    April 27, 2013

    if consumers have bought it new and a repair is needed, its bad..Foxconn must be having high  quality standards. What happened, is it that some batches have defects??

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