Foxconn Profit Margin Remains Tight As Apple Flourishes

Discussion in 'iOS Blog Discussion' started by MacRumors, Jan 5, 2012.

  1. macrumors bot

    MacRumors

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    [​IMG]


    This chart, put together by Bloomberg, shows the slim profit margins that Foxconn deals with to build millions of pieces of consumer electronics for clients like Apple -- which has seen its margins grow dramatically in recent years.

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    At the time of the iPhone launch in 2007, Apple's profit margins were at 15.4 percent, while Foxconn's was at 2.7. In the most recent quarter, Apple reported 30.8 percent margins -- double what it was 4 years ago -- with Foxconn at a mere 1.5 percent.

    Foxconn has continued to grow with the tremendously successful launches of new iPhones and the iPad. The company has sacrificed margin growth so it can get volume and scale, something very important to Apple which puts extraordinary pressure on its suppliers for low prices.

    While Foxconn's margins are extremely small in comparison to Apple, they do exceed those of a number of categories, including grocery stores and the global shipping industry.

    Article Link: Foxconn Profit Margin Remains Tight As Apple Flourishes
     
  2. macrumors newbie

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    #OccupyCupertino
     
  3. macrumors G4

    *LTD*

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    So in other words, it's comparatively decent, given the business they're in.
     
  4. macrumors regular

    DrMotownMac

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    I don't get the problem here. Who cares if Foxconn has a narrower profit margin than Apple? If they don't like it, they can either figure out ways to cut costs or raise revenue, like Apple does. For example, they can try charging Apple more money for the parts, but my guess is that Apple will look to competitors as an alternative. Or, they can try to reduce staff or sell off equipment, but then they might not be able to keep up with demand.

    This is called life, and as everyone's father once told them, it's not always fair. But it seems to me that the executives at Foxconn are doing pretty well, otherwise they wouldn't remain at Foxconn and Foxconn wouldn't remain in business. If there were no Apple, they probably WOULD go out of business, so they should be happy they have Apple's business and call it a day. For them to try to raise prices with Apple would be stupid and suicidal.

    As a physician, I get paid by insurance companies who have much higher profit margins than I do. But if I try to raise my prices, then Blue Cross Blue Shield would simply terminate my contract and I'd be out of business. So, what do I do? I shut-up and act happy that I have a fulfilling job I enjoy which makes me a comfortable living (at least until single-payer medicine is instituted, at which time I'll probably go into the computer business or something else, because I'll no longer to be able to operate my small medical practice).

    Bottom line: This shouldn't even be a story. Foxconn is lucky to be in business and should be thankful Apple is doing as well as it is.
     
  5. macrumors 68040

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    Guess who convinced Steve to get Apple to dump its factories and outsource manufacturing?

    Tim Cook.
     
  6. macrumors 6502

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    #6
    Does the Apple profit margin take R&D into account? Though I'm sure Foxconn takes some time to optimize its processes and build its plants, there is likely comparatively less R&D at Foxconn.
     
  7. macrumors 68040

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    Absolutely. R&D is a line item expense. It is deducted from gross margin. Net profit accounts for R&D, SG&A, taxes, etc.

    But don't just trust me, go look at Apple's SEC filings. It's there for anyone to view.
     
  8. macrumors regular

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    Not sure how many employees Foxcon have on the Apple side of things but theres 80,000 in one of their plants alone. That's thousands of jobs at least Apple keep away from American labour. Is this called being morally corrupt? Business is no business if your consumers are destitue and jobless. Isn't it time Apple started to bring manufacturing home?
     
  9. jontech, Jan 5, 2012
    Last edited by a moderator: Jan 6, 2012

    macrumors 6502

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    Foxconn doesn't just make Apple products, so how is Apple to blame for another companies slim margins?
     
  10. macrumors G4

    *LTD*

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    Foxconn's problem (if they view it as a problem at all.)

    They agreed to take on Apple as a customer. They saw the same terms Apple did.
     
  11. macrumors 68000

    TMar

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    Generally in the PC market Foxxconn components are considered entry/sub-par...
     
  12. macrumors 68000

    wikus

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    Foxconn should give apple a taste of the apple tax.

    Then they won't have much to worry about and apple's monopoly will diminish. :)
     
  13. macrumors member

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    #13
    Well..

    I don't know how to explain, but profit is good at least? :apple:
     
  14. macrumors G5

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    #14
    I'll only comment that exploitation is exploitation. That's in response to those that say Foxconn should smile and be happy for what they have and all the people they employ.

    I am not stating they ARE being exploited. Just pointing out that no one knows what is and isn't going on for certain, what the deals consist of and what leverage was/is being used by any parties involved.
     
  15. macrumors newbie

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    jobs

    I would remind you that Apple products are themselves valuable tools in millions of American companies that provide jobs, and making them more expensive will translate into lower profits and fewer jobs in those companies.

    Moreover, Americans aren't the only ones in the world who need jobs. If our foreign customers are all "destitute and jobless", who will we sell our products to?
     
  16. macrumors G4

    *LTD*

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    It doesn't make any sense for Foxconn to make their relationship with a major client difficult. Foxconn and Apple saw each others' terms. Foxconn and Apple agreed to those terms. Foxconn has a contractual obligation to Apple. I'm not sure where, in this scenario, giving a partner a "taste of their own medicine" (provided there is actually any wrongdoing in the first place) would actually be rational. :confused:

    ----------

    The reality of any business relationship is that one party will almost always end up needing the deal more, or needing the other more. If Foxconn feels "exploited" then they can renegotiate with Apple. For now, they have an agreement in place. If Foxconn's workers feel exploited, then it's a matter that is between them and Foxconn, not Apple.
     
  17. macrumors 6502

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    I wouldn't say subpar. They don't make ASUS or Gigabtye type boards but they make many components for those boards as well as their own.
     
  18. macrumors 603

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    This "tax" is based purely on supply and demand. Nobody just "gives" tastes.

    Apple can keep their prices and thus their profits high because a huge portion of their customer base has zero interest in buying a Dell or a Nokia thingy, even if it's 10%+ cheaper than Apple's stuff. The demand still strongly exists even at the higher price point.

    However if Foxconn tried raising their prices more than just a bit, a whole bunch of other manufacturing companies would gladly jump in with a price in between, and many of Foxconn's customers would jump ship faster than a blur. The taste would be of a poisoned fruit Foxconn would end up eating themselves.
     
  19. macrumors G5

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    I don't disagree per se. However - they might not actually be able to renegotiate or their hands might have been tied in the first place IF they wanted to sustain their business.

    Further - it DOES say something about Apple if (and I say IF) Foxconn workers are exploited. It's not JUST a matter between the employees and Foxconn.

    You can't deny that the press just loves to run with stories when someone at Foxconn gets injured, commits suicide, etc. And whether or not it's "fair" to Apple is irrelevant. They get the bad press.
     
  20. macrumors G4

    *LTD*

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    This is certainly true. But it doesn't seem to filter down to consumers to the effect that they notice or care. Which is perhaps unfortunate, but not at all surprising.
     
  21. macrumors G5

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    Unknown. You can say that Apple doesn't suffer from lack of sales. But you have no idea how many people are refusing to do business with Apple because of it.

    Apple's doing just fine regardless - so it's not like they "need" the business of those that refuse them. But to say that consumers don't care or notice is just an assumption.

    But I agree that it's unsurprising and unfortunate.
     
  22. macrumors 68000

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    While Foxconn's margins are thin, at least they are making money. That's something that many in the electronics industry can't say.

    What is amazing, and everyone on this thread hasn't mentioned, is that Apple has been able to make extremely healthy profits on a large scale. Usually these kinds of profits are only possible in a tiny niche industry that is too small to attract wolves ready to make the same products for much smaller profits.

    Apple protects their turf using a lot of tools, the patent suits being only one such. Rather then blast Apple for making healthy profits, one should laude them for doing what most other companies cannot figure out how to do: be innovative with their products, be innovative in setting up cost efficient production strategies, be innovative in marketing to their customers, and being innovative in hundreds (if not thousands) of unique ways.

    Remember, Apple shouldn't have been successful with their stores, everyone predicted a huge failure. Remember how Steve Ballmer laughed at the idea Apple could be effective in the phone business. Remember how everyone's tablet up to the iPad flopped terribly. Apple is seeking to break ground in many areas where other's make very thin profits, including the TV industry.

    It's almost like there's been a business tenet in place that if you are going to do large scale things in certain business sectors then you will only make razor thin profits. Apple is proving that idea wrong, and in doing so, may actually shock the business industry into rethinking some basic business tenets so that once again companies may start making money like it was the 50s or 60s again.

    One more thing: do a search for an article in the New York Times titled Even a Giant Can Learn to Run.

    It's about the turn-around at I.B.M. with the new C.E.O., Samuel J. Palmisano, in 2002. That's when the company shed the P.C. business along with other businesses that were not highly profitable. It's been so profitable that Warren E. Buffett, who typically shuns technology stocks, announced he had accumulated $10 billion of I.B.M. shares, a stake of more than 5 percent.

    What I found most interesting about Mr. Palmisano is that he built the change at I.B.M. on four questions:
    • “Why would someone spend their money with you — so what is unique about you?”
    • “Why would somebody work for you?”
    • “Why would society allow you to operate in their defined geography — their country?”
    • “And why would somebody invest their money with you?”

    It sounds obvious, but that's how change starts. Some companies break mental boundaries, and other can follow. There was a time no olympian could break the four-minute mile, however once one man did, it is now being done at high school meets.
     
  23. macrumors 68000

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    #23
    Is this actually true? The subject of Chinese production was pretty much avoided in the autobiography. Surprising as that is such a big part of the Apple story.

    Jobs did lobby Pres Obama when he visited the area for some sort of tax holiday for the profits stashed away in overseas banks.
     
  24. macrumors 68040

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    #24
    http://money.cnn.com/2008/11/09/technology/cook_apple.fortune/index.htm

    By the way, there was no autobiography. Steve didn't write one. He authorized a biography written by someone else.
     
  25. macrumors 6502a

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