Profit Margin Tensions Souring Relationship Between Apple and Foxconn

The relationship between longtime partners Apple and Foxconn is eroding due to a battle over profit margins, according to a new report from The Information. While Apple's gross profit margins are close to 40 percent, Foxconn's profit margins are in the single-digit percentage points, leading Foxconn to employ questionable tactics in an effort to grow its profits.

foxconniphone12
For manufacturing projects, Foxconn routinely tells Apple that it hired more workers than it actually did. Foxconn has also used Apple-owned equipment when making devices for Apple's rivals, and has taken shortcuts on component and product testing. As a result, Apple has increased monitoring and tracking of Foxconn employees and its equipment that's in Foxconn facilities.

More than two dozen former Foxconn and Apple employees told The Information that the relationship between the companies is changing as Apple seeks to diversify its supply chain. Apple originally spoke to Foxconn about manufacturing the AirPods Pro, for example, with Foxconn expecting to win the contract and retrofitting a facility for production purposes only to see the contract go to Foxconn's competitors.

Foxconn manufactures between 60 and 70 percent of the iPhones sold each year, and Apple is by far Foxconn's largest customer, so supply chain diversification is a major threat. Under Tim Cook, Apple has sought cost reductions and implemented aggressive audits of manufacturing lines.

To generate more profit, Foxconn has tried selling its own equipment for manufacturing and component testing with limited success, as well as moving some manufacturing products in-house. Foxconn developed its own chemicals for polishing the iPhone's screen rather than relying on chemicals from a Japanese company, for example.

Foxconn has disregarded some of Apple's policies, using Apple equipment for non-Apple products as mentioned above and providing Google employees with a tour of a Foxconn factory manufacturing the 12-inch MacBook ahead of its release. Foxconn also reportedly cuts corners with manufacturing. With the ‌iPhone‌ 7, some reject phones had loose screws or tiny bits of metal that were supposed to be disassembled, but Foxconn instead opened the flawed phones, removed debris, and resealed them to avoid wasting materials, a process hidden from Apple.

More detail on the souring relationship between Foxconn and Apple and additional examples of tension between the two companies can be found in The Information's full report, which is well worth reading.

Top Rated Comments

chachawpi Avatar
12 months ago
Maybe Apple should use its size and power for good and take a cut in their own profit margins for the purpose of bringing the manufacturing home.
Score: 46 Votes (Like | Disagree)
rjp1 Avatar
12 months ago
Apple’s greed ... every where ... will probably be what will bring about their downfall.
Score: 28 Votes (Like | Disagree)
nwcs Avatar
12 months ago
I’m surprised it took this long for this to occur. This may be the reason why Apple has been diversifying its manufacturing rather than political issues or humanitarian ones.
Score: 18 Votes (Like | Disagree)
robjulo Avatar
12 months ago
Of course...greed that would be excoriated on this site if it were any other company other than Apple, will be cheered by the usual suspects here.
Score: 16 Votes (Like | Disagree)
JetBlack7 Avatar
12 months ago

Maybe Apple should use its size and power for good and take a cut in their own profit margins for the purpose of bringing the manufacturing home.
If they wanted that, they would be manufacturing in the US a long time ago. They just prefer to get a much larger profit margin with much cheaper labor.
Score: 13 Votes (Like | Disagree)
chachawpi Avatar
12 months ago

We need to include *all* the tech giants in this, not just Apple. And we also should not forget the telecomms.

Jacques Attali was right. Corporations and their CEOS are becoming the new feudal overlords.
A company with Apple's size, power, and influence should feel obligated to move the goalposts and set an example for others.
Score: 11 Votes (Like | Disagree)

Top Stories

foldable iPhone concept

Apple Has Sent Folding iPhones to Foxconn for Testing, According to Chinese Report

Monday November 16, 2020 4:32 am PST by
Apple has begun sending foldable iPhones to assembly partner Foxconn for testing purposes, with a projected release set for September 2022, claims a new Chinese report out today. Citing supply chain sources, Economic Daily News says the testing involves evaluating the use of OLED or Micro-LED display technology, because the choice of either screen will affect the subsequent assembly methods. ...
apple adv manufacturing fund ii vi hero 05052021 big

Apple Awards $410 Million to Face ID and LiDAR Scanner Supplier II-VI

Wednesday May 5, 2021 5:07 am PDT by
Apple today announced it has awarded $410 million from its Advanced Manufacturing Fund to Pennsylvania-based II-VI, a manufacturer of optical technology. The funds will help create additional capacity and accelerate delivery of future iPhone components, supporting more than 700 jobs in Sherman, Texas; Warren, New Jersey; Easton, Pennsylvania; and Champaign, Illinois, according to Apple....
Apple iPhone Production waiting to start in Vietnam

Apple Asks Foxconn to Move Some MacBook and iPad Production From China to Vietnam

Thursday November 26, 2020 3:07 am PST by
Apple has asked Foxconn to move some of its iPad and MacBook assembly from China to Vietnam in an effort to minimize the impact of ongoing trade tensions between the U.S. and China, according to sources cited by Reuters. Foxconn is building assembly lines for Apple's iPad tablet and MacBook laptop at its plant in Vietnam's northeastern Bac Giang province, to come online in the first half of...
Apple awards Corning an additional 45 million dollars team member 051021

Apple Awards iPhone Glass Supplier Corning Additional $45M From Advanced Manufacturing Fund

Monday May 10, 2021 2:43 am PDT by
Apple today announced it is awarding its longtime iPhone, iPad, and Apple Watch glass supplier Corning an additional $45 million from its Advanced Manufacturing Fund, building on its $200 million award in 2017 and $250 million award in 2019. The combined $495 million investment will support Corning's ongoing research and development into "state-of-the-art glass processes, which led to the...
iphone 13 yellow

Apple Supplier Foxconn Raises Employee Bonuses Ahead of iPhone 13 Production

Friday May 7, 2021 3:58 am PDT by
Apple supplier Foxconn, which serves as the main iPhone manufacturer, is taking measures to expand its workforce by offering increased bonus pay to new recruits in Zhengzhou, China, ahead of when production of the iPhone 13 is set to get underway. According to the South China Morning Post, the newest raise in bonus is the third instance this month where the supplier has attempted to attract ...
iphone12 lineup wide

Foxconn's iPhone 12 Output in India Hit By Local Lockdowns

Tuesday May 11, 2021 3:23 am PDT by
iPhone 12 production at a Foxconn factory in India has been cut by more than 50% amid a lockdown, and multiple reported cases of COVID-19 infections for workers at the plant, according to a new report from Reuters. The main factory located in Tamil Nadu, a state under extreme lockdown measures, has been forced to significantly cut back on production. According to sources who spoke to Reuters,...
apple independent repair program

FTC Report Highlights Consumer Harms of Manufacturer Repair Restrictions

Friday May 7, 2021 4:26 am PDT by
The U.S. Federal Trade Commission has published an in-depth report looking at how the product repair restrictions that manufacturers put in place negatively impact consumers and small businesses in various ways. Titled "Nixing the Fix," the report covers a litany of methods that companies use to limit the ability for customers and independent business to repair their products. Focusing...
Apple SR Report 2019 women assembly iphone 03062019 big

iPhone Maker Foxconn Says China's 'Days as the World's Factory Are Done'

Wednesday August 12, 2020 7:55 am PDT by
China will no longer be the world's manufacturing epicenter going forward, according to Apple's largest supply chain partner Foxconn, which has been gradually expanding its operations in other countries amid the U.S.-China trade war. "No matter if it's India, Southeast Asia or the Americas, there will be a manufacturing ecosystem in each," said Foxconn chairman Young Liu, according to Bloombe...
iphone assembly trays

Apple Says Over 110 Manufacturing Partners Committed to Using 100% Renewable Energy

Wednesday March 31, 2021 6:48 am PDT by
Apple today announced over 110 of its manufacturing partners around the world have committed to using 100 percent renewable energy for their Apple-related production. Once achieved, Apple says these commitments will prevent over 15 million metric tons of CO2e annually, the equivalent of taking more than 3.4 million cars off the road each year. Apple already announced some manufacturing...
ipad air gold 16x9 feature

Apple Shifting More iPhone and iPad Production to India and Vietnam

Wednesday January 27, 2021 12:14 pm PST by
In an effort to diversify its supply chain and manufacture more products outside of China, Apple this year plans to ramp up production of iPhones, iPads, Macs, and other devices in India and Vietnam, according to a report from Nikkei Asia. iPad production in Vietnam is set to start as early as the middle of 2021, and the shift will mark the first time that a large number of devices will be...