Foxconn Getting By On $8 Per iPhone

A blog about business and economics.
Sept. 25 2012 11:29 AM

Foxconn Getting By On $8 Per iPhone

Obviously the top executives at Hon Hai / Foxconn are hardly the wretched of the earth, but an important piece of context for the riot-inducing working conditions at its factories is that the company itself is surviving on incredibly thin margins of around $8 per iPhone:

The company is the sole assembler for the iPhone 5 this year, with 80-85 per cent of shipments next year as well, according to analysts at Barclays. At an estimated $8 a phone, that workload brings in revenue, but has also put the company under strain. To handle Apple’s demands, Citi analysts estimate, Hon Hai must increase headcount at its Zhengzhou iPhone factory from 150,000 workers in June to 250,000 in October.
Labour shortages have been a widespread complaint among Chinese factories recently, and factory owners, including Hon Hai, have raised wages to entice workers back to the shop floor. This is a delicate balancing act for Hon Hai, which survives on gleaning razor-thin profit margins from the vast scale of its operations.
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It's Apple itself a step or two removed from the factory floor rather than Foxconn that's earning the high margins. With $319 in operating margin per iPhone, the actual cost they're paying for assembly is trivial compared to the retail price the mobile network operators pay. The components themselves (the memory, the display, etc.) cost a fair amount more than the manufacturing but in essence all of Apple's suppliers are being asked to live in tiny margins in exchange for huge sales volumes.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.