The Asian technology suppliers’ equivalent of being able to say “I’m with him” at a party are the words “I’m an Apple supplier”. After the US giant named suppliers for the first time this year, any gatecrashers were exposed. Yet as the latest iPad was unveiled this week, it is becoming clear that the Apple badge is not an unmitigated blessing.
Take Hon Hai Precision Industry, also known as Foxconn, the world’s biggest contract electronics maker. The Taiwanese group is by far the biggest assembler of iPhones and iPads. Apple will account for about two-fifths of Hon Hai’s estimated T$3.5tn ($118bn) revenues this year, according to Barclays Capital, boosted by the new iPad and a new iPhone expected later this year. Yet Hon Hai’s prominence comes with risks. Enter the US Fair Labor Association, the non-profit group tasked by Apple with inspecting its suppliers following media pressure. The FLA’s report on Foxconn City in Shenzhen and its Chengdu facilities is due soon. In January, Foxconn workers in Wuhan protested against working conditions, evoking memories of the string of suicides by workers two years ago, after which the company doubled wages. Last month, Hon Hai unexpectedly announced it was raising wages for its Chinese workers (more than three-fifths of its 1m-plus workforce) by up to a quarter. No reason was given; its wages were already well above statutory minimums. Labour costs will now account for just under 5 per cent of Hon Hai’s cost of sales from 4.5 per cent, say HSBC. With operating margins of just 3 per cent, any increase is a genuine pressure.