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The confluence of the report, Apple's response, and trends in China itself means that they will need to hire 20% more employees to conform to the per worker hourly reduction pledge. Wage prices in China reliably go up 15% per year and the Chinese Rimimbi currency is all but locked against the dollar.

Now this does have the offset of paying less overtime by about 10-15%.

But overall we should see a labor component cost increase of about 15% per year with it being a bit front loaded as compliance ramps.

The single easiest way to have things cost us less is to borrow and spend less at the Federal government level. It is causing currency destruction at a rate of about 7% a year reliably under the Obama Presidency. We currently deficit spend at the shocking rate of about $250B a MONTH and we were promised stimulus would be one time and about $866B with a then ANNUAL deficit of about $450B.

The TARP, Fed actions, and such are large in scale to the tune of about $7T, about the same scale as the liquidity lost when home prices vaporized $7.5T in about a year and a half. The Fed has "sterilized" those actions, but they are real, have to be unwound some day and there are hard costs to real people to keeping interest rates ridiculously low. Also most of TARP and bank liquidity has been paid back with over $100B in net profit paid into the treasury already.

All of that stuff together makes it cost us more for gasoline (30% since Obama's budget was passed on currency destruction alone, no issues from oil speculation or Iran included in that), food, commodities, and payments to China.

In the CNBC interview the FLA President characterized the forward leaning of Apple and Foxconn on labor issues in China as likely to lead to a "race to the top". For those of us critical of Chinese policies of various types, this is only good. It is also having direct impact on large parts of Chinese society.

So I call it a mixed picture but far more good than bad, and slightly bad for forward earnings of AAPL.

Rocketman

Very good post.
 
Where are all the people crying foul when I have to work more than 60 hours in one week? I once had to work 60 hours in FOUR DAYS. Where are they when I work more than 7 days in a row without a day off? I live and work in America, I guess that means I'm not worth their consideration.
 
Big deal

Doesn't this make you all warm and fuzzy inside. My friends are unemployed or working at Wal~Mart and I'm really supposed to care about the people that are causing their misery.
 
"Thanks for nothing FLA" - Foxconn Workers.

According to Tim Culpan of Bloomberg "The biggest gripe, which surprised us somewhat, is that they don’t get enough overtime. They wanted to work more, to get more money."
 
It is a good news for the workers in foxconn. Expecting more good news for our common workers, not only in foxconn, but in many many other similar facilities.
 
The confluence of the report, Apple's response, and trends in China itself means that they will need to hire 20% more employees to conform to the per worker hourly reduction pledge. Wage prices in China reliably go up 15% per year and the Chinese Rimimbi currency is all but locked against the dollar.

Now this does have the offset of paying less overtime by about 10-15%.

But overall we should see a labor component cost increase of about 15% per year with it being a bit front loaded as compliance ramps.

The single easiest way to have things cost us less is to borrow and spend less at the Federal government level. It is causing currency destruction at a rate of about 7% a year reliably under the Obama Presidency. We currently deficit spend at the shocking rate of about $250B a MONTH and we were promised stimulus would be one time and about $866B with a then ANNUAL deficit of about $450B.

The TARP, Fed actions, and such are large in scale to the tune of about $7T, about the same scale as the liquidity lost when home prices vaporized $7.5T in about a year and a half. The Fed has "sterilized" those actions, but they are real, have to be unwound some day and there are hard costs to real people to keeping interest rates ridiculously low. Also most of TARP and bank liquidity has been paid back with over $100B in net profit paid into the treasury already.

All of that stuff together makes it cost us more for gasoline (30% since Obama's budget was passed on currency destruction alone, no issues from oil speculation or Iran included in that), food, commodities, and payments to China.

In the CNBC interview the FLA President characterized the forward leaning of Apple and Foxconn on labor issues in China as likely to lead to a "race to the top". For those of us critical of Chinese policies of various types, this is only good. It is also having direct impact on large parts of Chinese society.

So I call it a mixed picture but far more good than bad, and slightly bad for forward earnings of AAPL.

Rocketman

Rocketman? Your comments are usually so insightful and well targeted, I don't understand the hysterical incoherent rant...

I'm not sure what you mean by "currency destruction"-- the only links I can find to it are either the physical destruction of used bills, or Ron Paul nonsense... If what you mean is inflation:
fredgraph.png

We're well below historical levels.

If you mean the dollar exchange rate:
fredgraph.png

We haven't really moved from where Bush left us, and frankly I think the dollar is still too strong. You can argue in favor of cheaper prices, but we're not going to get the trade deficit under control, or boost demand for US products, until the dollar falls against foreign currencies, particularly the renminbi.

You can complain about deficits, but the deficit has fallen every quarter since Obama took office, and we're already back to less than the average Reagan deficit which is remarkable given the magnitude of the hit to revenues:
fredgraph.png


Low interest rates are a net benefit to anyone carrying a mortgage or invested in the stock markets and only really a bummer to people heavily invested in treasury bonds-- mostly big investment houses. To say there are hard costs to real people in keeping interest rates low is suggesting that real people are forced to invest in treasury bonds and the Fed is punishing them. The whole point of low interest rates is to discourage people from lending their money to the government and encourage them to invest it in the broader economy-- if people are insisting on holding treasuries, they either masochists, or don't see it as a hard cost.

And gasoline prices?:
fredgraph.png

They took a dive when we thought the world was ending, and now they're still below the Bush peak in nominal non-inflation adjusted dollars, not to mention real dollars or previous trend:
fredgraph.png


And frankly, if you look at the inflection points the rise in prices has much more to do with this (more negative is more imports):
Net-Oil-Imports-Exports-Asia-EnergyInsights-net.gif

than "currency destruction" or whatever you're blaming the government for.
 
I don't assume anything about how the Foxconn workers feel; it's immaterial to my critique. My only point, and it's a big one, is that law in China apparently means nothing. Imagine if an American steel mill, German car plant, or Japanese squid processing plant said, "We have decided to start obeying the law in a year and a half." Lawyers, regulators, and the public would be all over them the next day--and rightly so. No company would get away with this in the first world (unless it traveled in time back to 1890). As this denonstrates, China's pretenses to be at the fore of the 21st-century economy are just that.

Actually, they are within the law. There is a limit for overtime in general. Then there is a limit for overtime in cases where the company would be in trouble otherwise; if Foxconn can say that right now they wouldn't be able to fulfil their contractual obligations then people can work for longer. Legally. And it's obvious that right now Foxconn can't stop all overtime over the legal limit and fulfil its contracts. And then there is critical conditions, like firefighters on a large fire who don't have to leave after 48 hours, or after 90 hours.
 
...All of that stuff together makes it cost us more for gasoline (30% since Obama's budget was passed on currency destruction alone, no issues from oil speculation or Iran included in that)...

Are you honestly so forgetful that you don't remember when gas was over $4 a gallon during the summer of 2008 (before Obama took office). It is ridiculous that you are using this forum and this thread as an opportunity to spout off about completely unrelated politics.
 
According to Tim Culpan of Bloomberg "The biggest gripe, which surprised us somewhat, is that they don’t get enough overtime. They wanted to work more, to get more money."

"Thanks for allowing us to live in the industrial revolution era rather than living in feudalism."

Nice that some forum members shows overtime as a good thing.
 
Actually, they are within the law. There is a limit for overtime in general. Then there is a limit for overtime in cases where the company would be in trouble otherwise; if Foxconn can say that right now they wouldn't be able to fulfil their contractual obligations then people can work for longer. Legally. And it's obvious that right now Foxconn can't stop all overtime over the legal limit and fulfil its contracts. And then there is critical conditions, like firefighters on a large fire who don't have to leave after 48 hours, or after 90 hours.

I'm no expert on Foxconn's operations or Chinese labor law, but if what you say is true, it just goes to show that labor law--and enforcement thereof--is a joke in China. Not exactly breaking news, I know, but it's a debilitating indictment of the alleged 21st century economic hyperpower. This goes for any respectable company in any fair society: If you can't fulfill your contracts within the scope of the law, then hire more workers. Don't enter into contracts you can't legally fulfill. Simple. No exceptions in countries where there is rule of law.

Truckers in the EU and U.S. are limited in the amount of hours they can drive in a given period. "I had a lot of stuff to deliver" is not an excuse. In fact, it's the reason for the law. And although you can hardly compare the importance or soceital benefits of assembling iPads to putting out a five-alarm conflagration, public safety officers in counties where there is rule of law always have provisions for overtime clearly defined (usually via their collective bargaining agreements in the US or codified by law in many EU countries where, paradoxically, police and other public safety officers are prohibited from organizing).

Think of it this way: Can you imagine GM demanding its factory workers work in violation U.S. labor law because Buicks suddenly became as popular as iPhones? It's inconceivable, and not just because of unionization. Rule-of-law societies wouldn't stand for this. And please don't invite comparisons to The Jungle or the Ford Hunger March: the year is 2012. 2012 it may be, but China only half understands this: The mag-lev trains and Bird's-Nest stadiums demonstrate that China is interested in displaying only the veneer of modernity. I don't blame Foxconn for operating within the norms of Chinese industry. But if China wants to lay claim to being the vanguard of the 21st-century industry, then it should be abolishing its 19th-century labor practices as fast as it's building new shopping malls and reforming its anti-rule-of-law practices at the same pace that it's erecting KFCs. But we know that isn't going to happen, else its amazing economic growth would go to spinning beach-ball land--and then the jig would be up.
 
Now I wonder what happened to Samsung and such that gets their things assembled at Foxconn as well, will they be included in this agreement... I definitely hope so otherwise it's only half a success
 
What does iPad cost and less than $1 /hr have to do with anything? Apple don't own Foxconn, Foxconn is a supplier to ALL the electronic companies. Have they all agree to raise they hr wage to Chinese workers too? or should this be just Apple issue?

The cost of living is different in China than the US. etc.. etc.. read and understand how the world really is, Foxconn have hundreds and thousands of workers standing inline applying for job at each job fair, if you think these better options elsewhere, please advice.

Here's my advice to everybody who pretends that Foxconn is such a great company to work for when you live in China: Move your sorry asses to China, work at one of their factories for a year and then tell us how great it was and how much you loved manufacturing products for decadent Americans that you could NEVER afford to buy yourself no much how many hours per day you work.

Your sense of entitlement and your slave owner mentality is fueled by other people's poorness and their horrible working and living conditions.

No, I'm not a commie and no I do not believe in the fairy tale that everybody on this planet can be equally wealthy. But at least I do realize that our western wealth is based upon the poverty of others. Most posters here obviously fail to understand this and have the disgusting attitudes that those slave workers should even be grateful for the bread crumbs that we throw over the fence.
 
First I will say great job. Next I have to ask why exactly does it take 16 months to get into compliance. Yes I do realize its a gigantic company with so many bodies and they will clearly have to hire more workers etc, etc. Still it shouldn't have gone on for so long, but that was the house that was built.

If you look only at one factory, they have to hire 20% more employees to make up for the lost overtime. That's 25,000 employees they would need to hire and train, feed and house. Can't be done even in 16 months, so they also have to realize they will not be able to meet their contract obligations, and there will be shortages for all of their customers, not just Apple.

How Foxconn plans to deal with all of this will take time for them to figure out.
 
The New York Times estimated an iPhone would cost $65 more if made in the USA and I , for one, would be much happier paying 65 bux more for that...

Foxconn emply 120,000 workers, plus all the suppliers which double that easily, and whilst I have nothing against them personally I simply don't understand why Apple refuses to make products in the USA...

Kevin

It's not only wages (although cheap labor is the primary driver), it's also agility. It's harder to do business in the US than China for very large manufacturing companies.
In China, they can hire 10,000-15,000 workers in 24hrs and have them transported, housed and working within a week. For each squad of workers Foxxconn has a mid-level engineer assigned... they have 40,000 mid-level engineers and 700k+ workers for Apple alone.

Once Foxxconn wins a contract they can hire and deploy these workers with lightning speed, no red tape, government intervention, political interference other and delays. The US cannot deliver this, even if you'll raised the final product price by $65.

So if you want companies to design a new version of a product and have it out on the market, globally, 6 months later... you have to have an agile business environment. Otherwise, you'll be waiting *alot* longer. This applies to most manufacturing in electronics, not just Apple.


.
 
Here's my advice to everybody who pretends that Foxconn is such a great company to work for when you live in China: Move your sorry asses to China, work at one of their factories for a year and then tell us how great it was and how much you loved manufacturing products for decadent Americans that you could NEVER afford to buy yourself no much how many hours per day you work.

Your sense of entitlement and your slave owner mentality is fueled by other people's poorness and their horrible working and living conditions.

No, I'm not a commie and no I do not believe in the fairy tale that everybody on this planet can be equally wealthy. But at least I do realize that our western wealth is based upon the poverty of others. Most posters here obviously fail to understand this and have the disgusting attitudes that those slave workers should even be grateful for the bread crumbs that we throw over the fence.

I am from China, I'm comparing their life they have on their village vs. their life working for Foxconn. Do you know how much harder it is in small villages comparing to the big cities. Do you think that might be the reason millions have left villages for city work. You are using your western values and judgement. You have no idea what you are talking about. If you feel so bad from them, you should move there and share your income with them and help them out.

They are not slaves, you are clueless. They can quit anytime and look for better opportunities. But, Foxconn is the best they can get given their skills and education. However, you, the great white man wants everyone on the plant to be just like you and use your value as a guide.
 
Rocketman? Your comments are usually so insightful and well targeted, I don't understand the hysterical incoherent rant...

I'm not sure what you mean by "currency destruction"-- the only links I can find to it are either the physical destruction of used bills, or Ron Paul nonsense... If what you mean is inflation:
mega-snip

The purchasing power of a dollar is almost exactly inverse of gold price. There was a fear premium on gold during the crisis so I would look at the 200 or 400 day moving average to smooth the data. You can also look at the relation to the Canadian Dollar and the Swiss Franc, which while fiat currencies, they have a stable monetary base policy.

Inflation as reported was changed by this administration to "improve" it, but when you use the "old" method inflation is higher and unemployment is higher. Both look bad and have unhelpful consequences such as triggering higher pension and wage COLA which hurts corporate earnings and government budgets.

If it were not for the price fixing of interest rates by The Fed, the massive increase in federal debt would have already blown up the budget in interest payments. Bond holders would have benefited handsomely, mainly pension plans, which need the help, large corporations, mostly domestic, and government agencies at all levels. I think China for example only holds around 2% of our debt, but they are the largest single foreign sovereign holder. 5 of our best allies are among the other top 12.

The next "bubble" is government debt BTW.

Besides the value, that is to say spending power, of the dollar dropping each year, it also means everyone with a pay check, pension check, bank account, investments held in dollar terms, all drop in actual value that much every year. All so the government can spend $1.3T more each year than it makes. I think that is a horriffic tradeoff.

If it were well known, there would be a revolt against politicians, not mere widespread disapproval and contempt.

Bringing this back to Apple, it is interesting that despite this reality Apple is able to maintain essentially fixed pricing and feature improvements year after year. They must be a whole bunch more efficient than we even suspect.

This entire problem could be reversed very simply too. Just reduce federal deficits every year and when you get to zero, keep going. For a fixed paycheck your paycheck would be able to buy more year after year. That's what the Ron Paul rant is actually about but he does not explain the real world benefits very well. The strongest beneficiaries would be folks on fixed incomes and low wage earners.

Rocketman

The one time stimulus continued on because the Majority Leader of the Senate simply refused to bring budgets passed in the House up for debate, negotiation and vote. So we are still operating on the 2009 "one time stimulus" budget. So when you hear about a do nothing congress, to be truthful it is the Democrats in the Senate, not the Republicans in the Senate and not either party in the House.

Here's a link: http://www.kyl.senate.gov/legis_center/budget.cfm
 
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No union representation

OH NOES!!!!!

Someone notify all the right to work states in the US - they might get audited by the Fair Labor association. Scary!
 
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