iPhone, iPad, and all-around Apple manufacturer Foxconn -- also known as Hon Hai -- has posted record profits for its fourth quarter amounting to NT$37 billion ($1.2 billion), a 5.6% increase. A majority of that increase can be contributed to Apple's expanding product lines and the cost involved in manufacturing, particularly when it comes to the iPhone 5. According to Bloomberg:
“As they scaled up production of the iPhone and solved production bottlenecks, Hon Hai’s profit margins improved and they may have had some room to push Apple for better pricing,” said Vincent Chen, who rates the stock buy at Yuanta Financial Holding Co. in Taipei.
Last quarter Apple released several new products including the iPhone 5, iPod touch 5th generation, and iPad mini. All have come with their own production and manufacturing challenges. The iPhone 5 specifically has not only had scuffing and scratching issues but has much higher costs associated with production.
The iPhone 5 and iPod touch 5th generation both contain a fused front panel assembly that was probably one bottleneck when it comes to production. Not only are these panels expensive themselves, they require a much more fine tuned production process which heightens the cost involved in producing them. Black (or slate in Apple's case), it also a harder color to anodize and the attention to detail and quality control was heightened by Apple after many users complained of the coating nicking and chipping away easier than it should.
Assembly issues, particularly with the iPhone 5 is most likely another reason that Foxconn is fetching a higher price tag from Apple to assemble them. For those that have pulled apart an iPhone 5 or an iPad mini, you'll notice that given its thin design, cables and components are enclosed in a much tighter space and leave much less room for error when it comes to quality control.
Hon Hai’s own gross margin, which measures the ratio of sales less cost of goods sold, climbed to a three-year high of 9.58 percent in the fourth quarter, from 8.89 percent a year earlier and 9.54 percent in the prior period.
That implies it is getting more from customers such as Apple to manufacture devices, continuing a trend of rising margins that began last year and which reversed almost a decade of thinning profit ratios.
More intricately put together products such as the iPhone 5, iPod touch 5th generation, retina MacBook Pro, and others most likely contribute greatly to the cost of manufacturing, explaining the increase on Foxconn's end. It will be interesting to see where profits go once demand is met within the current product cycle and new products start rolling out the door from Apple. Will they face the same manufacturing woes and will Foxconn be able to continuously obtain a premium to overcome them?
Source: Bloomberg
Reader comments
Foxconn reports record profits thanks to Apple's expanding, harder to manufacture product lines
I'd think that they would be getting better at keeping up but they can only do so much. It will be interesting to see how they do this year with demand.
They are definitely good at what they do or Apple wouldn't use them. I think switching companies this far in would create its own issues that Foxconn has already worked out in years past.
Agreed. I think that's why they can charge a higher premium.
Someone's iPhone 5 took a beating
foxconn and apple should start paying these employees more money now. they can still make a good margin even if they paid the employees more
That would be great, but they are all money hungry and prices will go up, with higher salaries everything will go up where the worker are, then the problem will never be solved
Things would probably be very different if they decided to finally go away with this damn S line just to save money by using old casings. Would love for it to just disappear. If I buy the iPhone 5S (upgrading from an iPhone 4), and Apple finally gets their head out of their ass and brings removable battery/bigger batter, or a home button similar to Droid Maxx so it doesn't start breaking after 5 months...I'd be pissed.
That is good for them. I hope they are sharing some of those profits with the employees and taking care of the workers better.
LOL. That is the absolutely last thing that will happen with a Chinese manufactuer. And Apple will be the last customer to force such a thing. So the Foxxconers have rather little hope...
Yes, it definitely would be nice if they shared the wealth with their employees and/or even gave them some better benefits and working conditions.
Sharing the wealth with their employees will never happen. The best principle to adapt in supply chain management is to limit suppliers to the least amount possible. Apple won't switch due to practices. They will enforce fairer changes, set higher expectations but Foxconn won't change how they operate.
I'm surprised Foxconn doesn't start their own brand of "high quality products". Seems like larger companies branch off while they've gained the reputation and knowledge for high demand and quality products.
With a company such as Apple, they alone could turn around the problems that we are having in the United States. If only there wonderful products could be manufactured here. All that they have done so far is just talks about Homeland Manufacturing. Could you imagine if buying Apple products contributed to the economical growth of the United States!?!!!
I can only imagine the scale that all of Apple's products are assembled at. It's amazing to think of all the production steps along the way and I would love to eventually read about how many steps it takes to assemble an iPod/iPhone/iPad/MBP/etc.