A report published in the Wall Street Journal (paid subscription or metered free view required) indicates that the Chairman of Hon Hai Precision Industry Co., parent of Foxconn, the largest global contract manufacturer, conducted an internal corporate event in Shenzhen last week. At the event, Chairmen Terry Gou informed his employees that Hon Hai intends to increase its investment in robotic arms to one million devices by 2013, from the 10,000 currently being utilized. The reason noted was to “to improve working conditions and provide a better career path for employees.” A corporate spokesperson later indicated to the WSJ that Hon Hai will increase automation on “dangerous and monotonous” tasks and to migrate more of its workers to “value-added” jobs such as product research and development.
As many in the supply chain community know, Foxconn is the de-facto high volume production arm of Apple , along with HP, Sony, and other high tech and consumer electronics companies. Last year, Hon Hai announced that it would build new facilities in the less-developed areas of China to save on labor costs. In the areas of Chengdu, Wuhan and Zhengzhou, prevailing wage rates average two-thirds that of the coastal manufacturing region.
We at Supply Chain Matters could not help but correlate this announcement by Hon Hai with the latest Wall Street buzz surrounding Apple’s financial condition. It seems that Apple has an enviable problem, it has accumulated over $76 billion in cash to date. That’s far more than cash cow Microsoft or any other high tech company. Comedian Jay Leno jokes that this number equates to more than what’s on hand for some European countries these days and perhaps Apple can consider buying out Greece or Italy. Wall Street and Apple’s stockholders are at-odds at what to do with this cash hoard. Buy another company? Pay more cash dividends? Invest in stock buyback?
Here’s a thought. With Apple’s prime manufacturer announcing an intent to introduce far more automation into the manufacturing of iPhones, iPads, and other of Apple’s products, do you think that Apple might consider this an opportunity to consider the sourcing of some additional production in either the U.S. or Europe? With such an enormous hoard of cash, perhaps Steve Jobs and the Apple management team might consider investing more in the populations that contributed so much to Apple’s wealth.
According to Apple’s 2010 Annual Report, 37 percent of net sales are derived from U.S. region customers, while 28 percent are derived from Europe categorized customers. Apple’s tax rate in 2010 was pegged at 24 percent, down from 32 percent in 2009. Apple’s gross margin in 2010 was 39.4 percent, fairly hefty for a high tech manufacturer. Also noted were deferred tax liabilities of $5 billion. The company has also accumulated an additional $25 billion in cash since the annual report.
The takeaway is this. Apple holds its supplier and environmental standards and code of conduct quite high. In that same spirit, perhaps it is time for Apple to consider more manufacturing employment in the regions that contribute to its bountiful profits.
©Copyright 2011 The Ferrari Consulting and Research Group LLC