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Apple is “Stepping Up” and Subsidizing Foxconn Wage Increases

Apple is “Stepping Up” and Subsidizing Foxconn Wage Increases

Gross margins have rebounded at Foxconn parent company Hon Hai Precision, and one analyst says the knows why. He thinks Apple has “stepped up” and helped pay for wage increases at its manufacturing partner.


While Hon Hai’s gross margins went up, Apple saw its own gross margins drop from 47 percent last quarter to 42.8 percent this quarter. Its conservative guidance for the current September quarter goes even lower to 38.5 percent.

Analyst Adnaan Ahmad with Berenberg Bank said in a note to investors on Monday that he thinks the changes in gross margins at the two companies signals that Apple probably played a part in the wage increases at Foxconn.

Hon Hai had indicated this quarter that it was trying to get better terms from some of its customers, after labor costs increased by as much as 100 percent.

Ahmad says that Apple’s capital expenditures jumped from $440 million in the December 2011 quarter to $2.1 billion in the June quarter. Ahmad believes Apple likely subsidized some of the wage costs at Hon Hai, but says he is “fairly sure” that two other large Foxconn customers — HP and Sony — didn’t contribute, citing the current “precarious situation” both technology companies are currently in.

Earlier this year, Foxconn Chief Executive Terry Gou said that his company and Apple would be sharing costs to improve labor conditions at at the factories where the iPad and iPhone were assembled. He had not revealed how the costs would be split.

Foxconn has faced criticism for what some have referred to as “sweatshop” conditions, where employees work long hours for little pay. Apple has encouraged change in the conditions with a series of audits, including independent reviews.

Last month, a report from the Fair Labor Association suggested labor conditions at Foxconn have improved.

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