February 28, 2012

Examine Apple's iSweatshop at Foxconn

By Justin Fritz of Wall Street Daily

Last month, The New York Times examined why Apple (Nasdaq: AAPL) chooses to produce its mega popular gadgets overseas.

Essentially, China’s supply chain dominance and factory flexibility make it the most convenient way for Apple to deliver products to consumers quickly and efficiently.

As I wrote then:
“Most of the gadgetry necessary to make Apple devices is already built in China. And because Chinese factories can recruit thousands of workers essentially overnight, they’re able to ramp up production much faster than facilities in the United States.”
The problem is, when The New York Times touched on the less-than-stellar working conditions at these factories, it became clear that this convenience comes at a price.

It turns out Apple investors weren’t too concerned with the news, as the company soon announced unprecedented earnings that catapulted shares 8% overnight.

However, ABC’s “Nightline” just ran a new in-depth story involving Apple’s largest supplier, Foxconn. Only this coverage more clearly examines the harsh lives of factory employees.

And without an impressive earnings announcement to keep investors smiling, should we expect an Apple selloff in the near future?

Let’s take a look…

What Would You Do for $1.78 An Hour?

The “Nightline” segment shows part of Apple’s $250,000 audit of its factory supply chain. The audit was spurred by the recent deadly factory explosions (killing four and injuring 77), bouts of employee suicides (nine in the spring of 2010 alone), and stories of underage labor at Foxconn.

As the video shows, employees work 10 to 12 hour shifts, sleep on hard bunks in rooms of seven and earn a starting wage of $1.78 an hour.

The work itself isn’t exactly inspiring, either. Take one employee, for example, whose job involves removing excess shavings from the aluminum casing for iPads – 3,000 times during her shift.

Not to mention the maddening robotic female voice at some assembly lines that repeats “OK” thousands of times per day.

Simply put, working for Foxconn isn’t exactly a walk in the park.

But is that enough to turn off consumers – and investors? Don’t bet on it.

Investors Didn’t Even Flinch

Weir made an interesting point during the segment:
“When I’m enjoying a steak, knowing where it comes from changes the experience.”

True. But if the steak’s good, you keep on eating it, right? Same goes for the iPhone and iPad.

Besides, Apple’s not exactly the only guilty party. Sony (NYSE: SNE), Dell (Nasdaq: DELL), HP (NYSE: HPQ), IBM (NYSE: IBM), Motorola Mobility (NYSE: MMI) and Toshiba all depend on Foxconn to build their products, as well.

Plus, as one Wall Street Daily reader asked when I last mentioned Apple’s factory conditions, “So which other cellphone company builds in the USA?” Good question.

It’s just that Apple’s dominant position in the industry means that it’s going to get the brunt of the bad press.
Don’t expect that to have any effect on the company’s share price, though. Shares have already climbed 2% from $502 to $511 since the story ran.

Like I said last month, the majority of investors don’t really care about how Apple’s products are made, just as long as they continue to keep consumers flocking to Apple stores to get the next version.

It’s also important to note that Apple has already taken steps to improve the situation.

For instance, ABC’s Weir notes that:

“More than a million line workers have been informed of their rights, 60,000 have taken advantage of free college-level instruction and they’ve forced shady suppliers to refund workers more than $6 million in illegal fees.”

Plus, when it comes to underage labor, Apple’s CEO, Tim Cook, recently told Goldman Sachs investors:
“Our top priority is to eliminate it totally.”

And this audit should create a better life for workers at Foxconn. As Louis Woo, the advisor to Foxconn’s CEO, told Weir:
“You being here is part of the openness, part of the learning, part of the change that Foxconn is undergoing.”
For the sake of the 235,000 people working at Foxconn, let’s hope that change happens fast.
What do you think? Are deplorable working conditions enough to make you think twice about purchasing the next iPhone or iPad?

Further Reading - Apple Loses iPad Suit In China: Time To Panic?

Courtesy Justin Fritz at Wall Street Daily (EconMatters author archive here)


The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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