As per a new report by The Information, the relationship between Apple and its primary supplier Foxconn has turned sour over the past few years. Foxconn has been unhappy with its low profit margins, despite being the source of products that earn 40% profit margins for its customer Apple. To boost its profits, Foxconn has turned to questionable business practices, which Apple is aware of and has been keeping an eye on.
Apple and Foxconn’s relationship hits a bumpy road
The Information gathered details from more than two dozen ex-Apple and Foxconn managers, who shared that Foxconn has been using Apple equipment to manufacture non-Apple products, giving tours of Apple’s facilities to Google’s employees, and even reporting higher headcount requirements to charge Apple more money.
Foxconn didn’t hire as many workers as it told Apple it needed, according to two former Foxconn employees who helped manage the Apple projects and negotiated Foxconn’s billings with Apple representatives. It wasn’t the first time Foxconn did this, say numerous Foxconn employees. The manufacturer has routinely asked Apple for a higher head count than required, as Foxconn has tried to eke out more profit or win new lines of business from Apple to boost its razor-thin margins.
Foxconn used Apple’s equipment to manufacture products for other clients, such as radio frequency testing machines, which forced Apple to add RFID tags to their machines and keep track of them. Google employees were also given a tour of Foxconn’s factory where the metal chassis for the 12-inch MacBook was produced. When Apple requested camera footage and visitor logs, Foxconn refused to provide the information. In another instance, Foxconn opted to use cheap in-house chemicals to polish iPhone’s screen, rather than source it from a Japanese supplier. The report also mentions that instead of disassembling rejected iPhone 7 models, Foxconn opened them up, cleaned them, and put them back together, rather than following Apple’s guidelines.
For Apple’s part, the company had signed its contract for AirPods Pro manufacturing to Foxconn, after which production facilities were set up only for Apple to award that contract to another supplier. In an interesting story, previously unheard of, iPhone 5C did not sell well, causing thousands of unsold units to pile up at Foxconn’s warehouse. The supplier was not happy that it was storing the phones for free, but Apple refused to take them because it did not pay for products until they leave the warehouse:
In 2013, demand for the iPhone 5C, a budget model with a colorful plastic shell, was so weak that hundreds of thousands of the devices piled up in Foxconn warehouses, according to two former Foxconn employees in its iPhone unit. Foxconn executives complained to Apple that they couldn’t keep storing the phones for free, but Apple had no incentive to take them because it doesn’t have to pay for its products until they leave the warehouse, they said. Apple cut short the iPhone 5C production schedule, while Foxconn began giving out the phones as gifts to employees, one of the people said. Apple eventually drew down the remaining inventory, the person said.
Check out the complete article at The Information as it has interesting tidbits and an insight into what is usually considered the most flawless supply chain in the industry that produces millions of iPhones every quarter.