This article is based on an article from the Japanese edition of Engadget and was created using the translation tool Deepl.
Taiwan's Foxconn has cemented its long-standing business partnership with Apple in the iPhone assembly. However, rumors suggest that the relationship between the two companies is cooling down as Foxconn's business profit margin is so low compared to what Apple gets from iPhone sales.
According to The Information, a paid media outlet with a reputation for original source articles, Apple's gross margins are close to 40 percent, while Foxconn's profit margins are in the single-digit percentage points, according to The Information. Therefore, Foxconn is reportedly employing dubious tactics to increase its share of the profits.
First of all, for manufacturing projects, Foxconn routinely declares a padded headcount than the actual number of people Foxconn has hired for Apple, and they use Apple-owned equipment to save on the testing process when they manufacture devices for Apple's rivals. As a result, Apple is increasing its monitoring and tracking of Foxconn employees and its own equipment in its facilities, according to the report.
More than two dozen former Foxconn and Apple employees testified that as Apple diversifies its supply chain, the relationships between the companies are changing. For example, Apple outsourced the manufacture of the AirPods Pro to Foxconn, while hoping to refurbish its factories to do so, and in turn outsource manufacturing to Foxconn's competitors.
Since Foxconn manufactures 60-70% of the iPhones sold each year, and Apple is its largest customer, diversifying its supply chain, or being able to reduce the percentage of orders placed with the company, is a major threat.
Because of this relationship, Foxconn has tried to sell its own equipment for manufacturing and component testing to increase profits, with limited success, according to the report. The company is also working on developing its own chemicals to polish the screen of the iPhone instead of relying on a Japanese company to do it for them, in an effort to reduce costs.
It is also said that Foxconn ignored Apple's policies and used Apple's equipment to manufacture devices for Apple's competitors, as described above, and even allowed Google employees to watch it being manufactured before the launch of the 12-inch MacBook.
There have also been reports of Foxconn cutting corners in the manufacture of the iPhone. For example, it's reported that failing quality tests on the iPhone 7 should have been disassembled, but they hid it from Apple and removed tiny bits of metal and other debris to reseal it (as a legitimate product).
It has been frequently reported that Apple is the world's largest client to its suppliers, but they are often under pressure to meet the highest standards of quality and cut costs at the same time. Despite rumors like this one, the lack of massive defects and recall hoopla with the new iPhone every year may reflect the reality that suppliers are basically forced to manufacture in good faith, with only a few gasps in opposition to Apple.
Source: The Information
This article is based on an article from the Japanese edition of Engadget and was created using the translation tool Deepl. The Japanese edition of Engadget does not guarantee the accuracy or reliability of this article.