Apple is broadening its supplier base as its main assembler, Hon Hai Precision Industry Co. 2317.TW +0.13% , is focusing on producing the high-end iPhone 5S, which is currently in short supply, the people said. Hon Hai, also known as Foxconn, has also been under scrutiny for its labor practices, creating a headache for Apple, they said. According to J.P. Morgan analyst Alvin Kwock, the high return rate of defective iPhone 5 smartphones also led to tensions between Apple and Hon Hai over which company would be responsible for repair-work costs.
Apple declined to comment on the manufacturing and labor issues.
Hon Hai Chairman Terry Gou is not willing to cut contract prices substantially to get more orders from Apple. Hon Hai is also aware of the risk of building gigantic production capacity for a single customer so it is adopting a more cautious stance on expanding production," said a Hon Hai executive, who declined to be named.
Hon Hai's fortunes have largely hinged on Apple because about 40% of its revenue comes from the Cupertino, Calif.-based company. Its operating margins have been under pressure over the past year due to high labor costs and a slowdown in revenue growth.
"Apple has raised this quarter's iPhone 5S orders from Hon Hai as demand has been stronger than expected. But it takes time to boost production capacity and Apple can't find other assemblers to increase production to meet demand immediately," said the Hon Hai executive.
Source : WSJ
No comments