Longtime business partners Apple and Foxconn have a relationship that has lasted longer than most marriages do. But, just like many marriages, the relationship is souring over money. The pair are seeing their relationship eroding over profit margins, says a new report from The Information.
Apple’s gross profit margins are close to 40%, while Foxconn’s margin points are in the single-digits, which has led Foxconn to employ questionable tactics in an effort to improve its profits.
When billing for manufacturing projects, Foxconn routinely claims it hired more workers than it actually did. The company also uses Apple-owned equipment to produce devices for Apple’s rivals. The manufacturer has also taken shortcuts on components and product testing. This has led to Apple’s increasing of Foxconn employees and its equipment that is housed in Foxconn facilities.
Numerous Apple and Foxconn employees told The Information that the companies’ relationship is transitioning as Apple seeks to diversify its supply chain.
Apple had approached Foxconn about manufacturing its AirPods Pro. Foxconn had anticipated getting the contract and began retrofitting a facility for producing the headphones, only to see the contract go to a competitor.
Under Apple CEO Tim Cook’s reign, Apple has increasingly sought cost reductions by suppliers and aggressively audits manufacturers’ production lines. Foxconn produces between 60 and 70% of the iPhones Apple sells, so any supply chain diversification is a threat to Foxconn’s bottom line.
Foxconn has in recent years made some moves Apple surely didn’t approve of, such as the time Foxconn executives gave Google employees a tour of a Foxconn factory manufacturing the 12-inch MacBook ahead of its release.
Foxconn is also reportedly cutting corners during production. During iPhone 7 production, some handsets were rejected due to loose screws or tiny bits of metal. The phones were supposed to be disassembled, but instead, Foxconn opened the devices, removed the debris, and resealed them.
For more details about the deteriorating relationship between Apple and Foxconn, read The Information‘s full report.