updated 05:00 pm EDT, Mon September 3, 2012
Manufacturer ahead of schedule on correcting problems, says FLA
An analyst with Berenberg Bank has told investors he believes that Apple must be subsidizing the recent pay hikes that have been given to workers at the Foxconn facilities Apple and other electronics makers use to manufacture iPhones and other consumer devices. Foxconn has been approaching its various partners -- Apple included -- to help subsidize the cost of labor pay increases as well as expansion and improvement of existing facilities, AppleInsider reports.
Analyst Adnaan Ahmad notes that while Apple's gross margins have dropped over four percent in the most recent quarter, Foxconn's gross profits have been rising despite the increased costs. He believes Apple agreed to subsidize a substantial portion of the pay hikes, which increased worker pay around 25 percent, the third such pay increase in as many years.
He further says that some of Foxconn's other tech partners, such as Sony and HP, have been unable to assist in offsetting costs due to their own "precarious" positions, and have been unable to pay for things like improving Foxconn's overall quality, workforce and facilities as demanded by the Fair Labor Association and other groups striving to improve worker safety and conditions.
For further evidence, Ahmad notes that Apple's capital expenditures rose more than 400 percent between the December and June quarters, though there are various possibilities that may also explain the increase. Apple traditionally has ebbs and flows in capex, such as seasonal increases, ramping up of new and refreshed products along with longer-term expenses such as those associated with the building of its new main headquarters, scheduled to open in 2015 -- though the company listed most of those expenses in 2010. Still, the increase is sharp enough that Ahmad's explanation is plausible.
Foxconn CEO Terry Gou had already said publicly that Apple would pay to share costs of improving working conditions at the Foxconn facilities. After a run of bad publicity (not all of which turned out to be accurate) -- during which Apple found itself as the focal point of criticism despite Foxconn's partnerships with HP, Dell, Microsoft, Google and other device makers -- the iPad maker joined the Fair Labor Association, which audited Foxconn and found a raft of labor violations. A follow-up report has indicated that changes implemented by Apple and Foxconn have significantly improved conditions, with the company being ahead of schedule in clearing up problems flagged for resolution by the FLA.