HP, Dell Keep an Eye on Apple’s Rising China Labor Costs

HP, Dell Keep an Eye on Apple’s Rising China Labor Costs

Hewlett-Packard and Dell are keeping a wary eye on the big jump in wages for workers who assemble Apple’s iPhone in China. They could be forced to bump up prices for their own products if labor costs continue to rise.

From Reuters:

Major contract manufacturer Foxconn Technology Group — which counts Apple, HP, Dell, Nokia and Motorola Mobility among its major clients — last week raised wages for its workers in China by 16-25 percent, the third hike since 2010.

The wage increases reflect a rising trend across the Chinese electronics manufacturing industry and could pressure already wafer-thin margins at the likes of HP and Dell.

HP CEO Meg Whitman says rising wages in China could have a ripple effect across the world electronics industry.

“If Foxconn’s labor cost go up, their product cost to us will go up,” she told Reuters in an interview on Wednesday.

“But that will be an industry-wide phenomenon and then we have to decide how much do we pass on to our customers versus how much cost do we absorb.”

Dell reported an 18% drop in its quarterly profit, and said it was also closely watching wages in China.

“It’s not clear to us how that will play out in terms of our costs,” Dell Chief Financial Officer Brian Gladden told Reuters. “It remains to be seen how that flows through the overall supply chain. We will continue to watch that.”

Companies like HP and Dell that specialize in creating ultra-efficient supply chains and cutting costs to preserve razor-thin profit margins, are especially sensitive to any rising expenses, which can be trouble.

“HP and Dell’s PCs could cost a bit more. Those companies have been trying to pass on extra costs. It may or may not work. Their products aren’t as differentiated as Apple’s,” said Shaw Wu, an analyst at Sterne Agee in San Francisco.

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