Foxconn takes 16bn hit?
Ummm, 8 million x $200 = 1.6 billion.
Unless the phones are $2,000 a pop or it was 80 million phones replaced then it would be $16bn.
Foxconn has apparently botched a batch of iPhones, which Apple returned to the contract manufacturer because they were not fit for sale. Details of just what went wrong are sketchy, as the source for this tale is an anonymous Foxconn staffer chatting to China Business. That report, after being forced through a couple of …
2) When did Apple become a "manufacturer" again?
Pretty much everyone uses third party's to produce components and build them.
Once bought a JVC telly (shudder) it went wrong within weeks and after the repair man told me the one I had was licensed by JVC but had components from Eastern Europe in it, it went back.
Apple take product quality seriously, other manufacturers could learn something here about not sending out a substandard product.
Yes and no. Good points for sending back substandard gear, bad marks for not spotting a production going off its quality bell curve before so many units were manufactured: it seems to suggest Apple is quite a distance from the production quality control, which has resulted in a substantial supply chain hit.
The real issue is whether the phones were rejected for cosmetic reasons or functional reasons. If cosmetic, then the bulk of the units can be recycled as is and new shells substituted for the old. If the rejections were due to the units being non-functional, then how much the rework, if they can be reworked at all, is a lot more complicated.
Some 20+ years ago, a firm in whose R&D department I worked entered the *really cheap* consumer electronics business. I passed one of those stores on my daily commute, so when I saw a pyramid of color televisions discounted 75%, I had to ask what was going on.
The manager pointed to the sign: AS IS. It seems the Chinese manufacturer was not testing them to see if they worked, and when the US retailer complained, told them they were cheap; throw the bad ones away and try again. It was a simpler time...
I won't mention the name of that (defunct) chain, but see below:
" ... Lay on, [_______],
And damn'd be him that first cries, 'Hold, enough!' "
Considering the number of failed post productions units rejected it suggests that there is no Q.A process present which in turn suggests that they are not serious about Quality at all. If they did there would be quality process's in place to stop the release of this many sub standard products.
I am getting tired of this bashing of Apple Maps. I've had more problems with Google Maps giving incorrect routes than any problems I have had with Apple Maps. And I've used both a lot since the time that Apple Maps has come out. I have had 0 incorrect routes with Apple Maps. I did have one where the endpoint was slightly off -- the store I was looking for was in a corner that had an offramp of the freeway on the bottom side of the lot, and the main road on the left side, and Apple Maps decided I was there while I was abutting the property on the offramp instead of while abutting the property on the main street. Google Maps has, on the other hand, tried to send me down non existent roads a few times, but where Apple Maps had it right.
Most of the problems with Apple Maps was with the 3D rendering, which could be awful, but was a feature that Google Maps that it replaced did not even have. And there were a bunch of isolated cases of geographic features or locations (town or crossroad or whatever) being placed incorrectly in their data feed, which translated to bad data on their map. That was a problem, but was one that Google Maps has suffered with as well. And it was pretty isolated. I've yet to encounter it personally and only know it from the humorous examples listed on the internet.
I've used Apple Maps for all sorts of navigation purposes, and it has always gotten me there safe and sound, and the one time I mentioned above, I could see the store when it said I was there so it was not an issue, even if not 100% correct.
Apple could learn a lot from others as well.
Here, in Germany, it is still a case of dud iPhones being picked up and returned 2 weeks later, hopefully, fixed. Other manufacturers deliver a replacement device, when the pick up the dud.
We've also had 7 or 8 defect iPhones delivered to us over the last couple of years. Always either Bluetooth and Wifi doesn't work, or the battery won't hold a charge...
Apple take product quality seriously, other manufacturers could learn something here about not sending out a substandard product.
1) I have never seen a non-Apple phone with a shattered screen, but plenty of iPhones suffer this fate
2) They don't have a great track record in aerial design now, do they?
3) or mapping software, come to think of it.
Before you hold someone up as a paragon of product quality, it doesn't hurt to engage your brain first.
I think the point is being made about the phone construction not the software that can be rectified.
If you go down that route then consider the number of malware apps available to android and consider the number of patches and updates on android.
Then consider how the patches and updates dry up with the introduction of a new Android phone.
As to broken screen, it happens to all phones and the aerial design was fixed in a fashion and sorted in the next incarnation, that's called development.
I agree with you on the mapping software, it is still sh*t but the guy who was responsible has gone. Anyway google maps is available as an app so that pretty much sorts that out.
I've seen lots of non-Apple phones with shattered screens. In fact, last night, at a football (soccer) game we were at, the lady sitting in front of me had a Galaxy 3 and it had a big impact shatter point in the upper left quadrant. And I saw a couple Android based phones at church the other day with similarly cracked screen from some sort of fall or impact. To be fair, I've seen a couple iPhone 4/4S recently that had similar impact point cracks or dropped phone cracks on the screens. All, both iPhone and Android-based phones [most likely Samsungs since Samsung is the largest Android vendor but I did not see what the phone model was in some cases] usually all use the same sort of glass, Gorilla Glass, and all suffer from similar issues when impacted or possibly dropped.
Luckily for me, despite repeated drops, non of my iPhones (original, 3GS, 4, 4S, or 5, or wife's 4 or 5) or iPads (original, 3, mini) have suffered any cracked or broken glass. The original iPad was dropped on its corner once, and there is a noticeable bend in the device casing on the corner, but the glass did not crack at all and the iPad does function 100% still.
The article is now corrected, but even so it won't be a $1.6bn hit.
Whatever is wrong with those phones it won't be every component that is faulty. 8 million items is enough to set up a workshop to replace the faulty parts with new ones and return the fixed items to Apple.
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"If Apple didn't keep an eye on the production and truly let 8 million rejects made, they deserve to eat most of the cost."
...but why? That would be like me being to blame for buying 10 Blackberrys to distribute to people at work, and one of them being faulty. I have a right to the expectation that what I buy will be as promised, just as Apple did here from the business that it buys the phones from and if not, to have them replaced with ones that are right.
I'm sure that there is a set acceptable failure rate in the contract, and Foxconn have obviously exceeded that, if this story is accurate, since it's all based on rumour.
Apple might have to be a bit careful. $1.6billion is a lot of money, even for Foxconn. Apple would seem to be playing hard ball, but they can't do that too much. A contract won't count for much if Foxconn ever decides that working for Apple isn't worth the hassle, especially in China...
BINGO!! I wondered if at least ONE person here would realize this.
Foxconn is a contract supplier. If the contract no longer meets a benefit vs cost ratio, any sane contractor will reexamine the cost of doing business with the customer and say "No, thank you!" to the next contract. Foxconn may not do this in its entirety but, considering the well documented difficulties with manufacture of the iPhone5's design and final finish requirements, don't be surprised if Foxconn decided to have much more say in the next iPhone design: "We can not manufacture that design to your satisfaction, so we won't. Redo the design so that we can actually built it".
As a manufacturer, I / we have certainly said "No, thank you!" to repeatedly difficult clients. After a while the benefit vs cost is simply not worth it; we have indeed used the line 'We can not manufacture this design to your satisfaction, so we won't' several times in the past.
Didn't reports surface fairly early on that the new iPhone was proving difficult to build.
Based on my experience of dismantling iPods (thin ribbon cable attached to a plug that's hard to unhook, result unhappiness) -- I avoid fixing Apple products.
Also Foxconn -- little or no end user support on their site, bulging capacitors on a couple of mobos I've seen.
If the fault was a scratch to the case then most of the value of the work is retained. The lose to Foxconn would be far less than the $200 being talked about.
The other point is over what period? They are making something like 30-40 million per quarter. If that's a years returns then its less than a 5% return rate, which isn't too horrible in the scheme of things.
It's most probably a faulty component further down the supply chain. If for exampke, during transit one of the chips were exposed to magnetism, or some form of mild EMP (lightning striking nearby?) it could result in fried chips.
These fried chips may not be integral to core services, so they put the phones together, turn them on and it all works. Until you try a specific functionality (GPS maybe?) at which point the chip does nothing.
another options which many companies seem to do, they tried to scrimp. "Apple are paying us $200 per phone we make, it costs us $150 per phone we make... If we change supplier from "WeMakeGoodChips" to "WeDon't" we could save $30 per device, and it'll work virtually the same!"
followed by a load of units making it past testing, making it to stores, and then somebody noticing that one of the chips on the inside is the wrong type during some kind of diagnostic test. Apple return items to foxcomm, foxcomm deny responsibility for the incorrect chip, citing a shipping error or something and get away with just a fine (in the form of replacing all those chips)
The Chinese article states it's 200 RMB or 32 US dollars per phone in labor cost alone and up to 16 billion RMB or 2.6 billion US dollars total to cover new parts costs and whatnot. This will eat up 66% of iDPBG's profit from 2012. iDPBG is the subsidiary of Foxconn that's responsible for making iPhones. The reason for the return is substandard exteriors.
Regardless of the reasons/blame, that's gonna sting a bit. Looks like the rumours of hard-to-manufacture was true afterall.
Maybe Sir Ives would like to consider manufacturability over obsession with "eyecandy-ness" for ver 6...? 1mm of thinness and micron-levels of fit and finish is worth jack shit if you can't reliably manufacture the damned thing.
I'm sure that Foxconn will replace one or two parts on these phones and ship them back to Apple. The article makes it sound like they're just being thrown in the bin, which is stupid. They would never stay in the bin; they would end up being sold illegally, eating into Apple's market and tarnishing the reputation of their products. Apple aren't stupid, and they won't let this happen.
Probably just me, but I get a sense that Apple is entering into another round of standard corporate fog. It first happened when Mr Jobs was booted out of his beloved company & the suits applied their suit mentality, churning out endless ( some would say aimless) variations on a theme. When he did return, Apples revival was, like it or not, a remarkable success.
I'm not so sure it can go a second round of his absence.
Steve Jobs was Apple, love him or loathe him - he was part of the brand. One can only succeed such a polarising personality, and while I'm sure Tim Cook is a fine CEO, the tone of Apple will never be the same. Without that obsessive mercurial energy and marketing/PR savvy driving & directing it I think corporate suitness will eventually take over - maybe for the better, but from my observations and experience, that's rarely the case.
I'm a native Chinese speaker, and here's a more accurate translation of the entire Chinese source article which I think will help clear some confusion:
1) The article is reporting the 200 per unit number in Chinese RMB (~32 USD). The total cost would be 1.6 billion RMB (~260 million USD), which is actually a lower bound, because...
2) the 200 RMB per unit cost is the just the labour cost of remanufacturing (essentially fixing mistakes), and does NOT include any additional parts needed. Exactly what is wrong on what models were not specified in the report.
3) 1.6 billion RMB represents 2/3 of the operating profit of the Foxconn subsidiary (iDPBG, apparently a separate corporate entity) that is responsible for manufacturing Apple products. The former president of said subunit (himself only took over at the end of 2012) was abruptly let go at the end of March and replaced with someone much more inexperienced.
4) This isn't the first time Apple rejected Foxconn shipments. In August 2010 Foxconn compensated Apple 800 million RMB due to quality problems (unknown product at an unspecified quantity). This time around there seems to be no compensation from Foxconn as of yet.
5) The highlight of the original article is actually about "growing pains" issues at the Foxconn subsidiary iDPBG. Apparently this issue is old hat (extending at least back to 2010) and is related to the explosive growth in demand for Apple products over the past 5 years. Essentially, iDPBG grew too fast too quickly and is causing quite a number of QC problems as the i-products got more complicated. This resulted in...
6) extremely authoritative power handed to Internal Audit and QC departments at Foxconn. Significant friction and pressure to deliver were thus propagated down the whole chain to the individual worker level. Apparently (according tot he article) this was a major contributor the suicide reports and alleged worker abuse related to Foxconn in big media last year.
7) Outside pressure to relax working condition meant that some powers were also taken from QC, which meant that standards were also inevitably loosened somewhat. However, now instead of labour problems we again have QC woes.
8) Foxconn is now seriously focusing on the QC issues. Terry Guo (Foxconn CEO and founder) apparently set-up an office at the iDPBG campus, and is not leaving until it gets sorted out. Apple personnel is also apparently involved. Productions were halted at all three iDPBG plants in the beginning of April for investigation. Production slowly resumed on April 15, but it was reported in the article that even with low yields (1000~2000 unit per line per day) the pass rate for QC remains suboptimal at 95%.
- Foxconn has people problems
- 200 RMB, not USD
- 200 RMB is labour only
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