Apple's iPhone 5 likely to stress Foxconn

Apple's iPhone 5 likely to stress Foxconn

Summary: Apple is prepping a third quarter launch for its iPhone 5, but that fact is likely to give Hon Hai Precision, which manufactures the iPhone via its Foxconn unit, a big headache.

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Apple has reportedly lined up components to manufacture its next generation iPhone as it preps a third quarter launch, but the device appears to be tricky to make. That fact is likely to give Hon Hai Precision, which manufactures the iPhone via its Foxconn unit, a big headache.

The Wall Street Journal reports that the latest iPhone will be thinner and lighter than the iPhone 4. The Journal story, which is more of a catch-up piece aggregating previous reports mostly from DigiTimes, cited two sources noting that the iPhone could be delayed if Hon Hai can't improve yields. The next-gen iPhone is reportedly "complicated and difficult to assemble."

Last month, Hon Hai Chairman Terry Gou acknowledged that the iPhone was difficult to make. The company is betting that it can improve its profit margins and diversify into new markets.

Analysts generally aren't impressed with Hon Hai and predict that its margins will continue to get squeezed. Morgan Stanley analyst Jasmine Lu said in a research note that Hon Hai has delivered strong revenue growth---largely tied to Apple---but faces a rough bottom line. She said:

Apple has been Hon Hai’s No.1 customer, with 26% sales contribution in 2010. We forecast sales from Apple to grow by 52% and 33% in 2011 and 2012 to account for 30 and 36% of total sales, respectively. This translates into 61-65% of Apple’s total COGS (excluding iTune and other software parts). Robust growth stems from Apple’s strong secular growth and share expansion alongside enlarged volume of iPhone and iPad for which Hon Hai serves as the sole source, except for iPhone CDMA that is shared by Pegatron. We believe Hon Hai remains the primary supplier to iPhone 5 and iPad 3, with nearly 100% share allocation. That said, Hon Hai’s growth from Apple is derived purely from Apple’s organic growth rather than Hon Hai’s share gains, which might only have more downside than upside.

Lu adds that Hon Hai also counts HP, Dell and Sony as top customers, but diversification efforts are mixed at best. In other words, Apple and Hon Hai are tethered and it's pretty clear which partner has all the leverage. That new iPhone Apple is cooking up may squeeze Hon Hai some more.

Related: Foxconn explosion: Apple iPad supply impact unclear, dangers of combustible dust

Topics: Mobility, Apple, Hardware, iPhone, Smartphones

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31 comments
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  • RE: Apple's iPhone 5 likely to stress Foxconn

    Hon Hai may have more leverage than you think.

    There are a few other Chinese manufacturing giants, but there probably isn't a single other company that has the scale to deliver on 100% of Apple's iPhone needs. To put the screws to Hon Hai it would mean that they would have to start multi-sourcing their manufacturing which increases the headaches for Apple. Multiple-throats-to-choke, inconsistent quality, increased overhead, etc.

    Hon Hai's competitors would also face the same manufacturing complications, but with less experience with iProducts and lower scale meaning it would be harder for them to match Hon Hai's price point at least initially.
    SlithyTove
  • Message has been deleted.

    fr_gough
    • Message has been deleted.

      woulddie4apple
      • Message has been deleted.

        DDERSSS
      • Message has been deleted.

        woulddie4apple
      • Message has been deleted.

        DeusXMachina
      • Message has been deleted.

        woulddie4apple
      • Message has been deleted.

        DeusXMachina
      • Message has been deleted.

        msalzberg
    • Message has been deleted.

      Will Pharaoh
      • Message has been deleted.

        woulddie4apple
      • Message has been deleted.

        Will Pharaoh
      • You would do yourself a service by learning some critical

        thinking skills. This is simply another in a long line of stories blaming Apple for everything that happens at Foxconn. It's called establishing a paradigm. To wit: that Foxconn is Apple. But, then, I wouldn't be surprised if you were one of the mob waving pitchforks when below national average foxconn suicides were laid at Apple's feet some months ago.
        fr_gough
      • Message has been deleted.

        woulddie4apple
      • Message has been deleted.

        DeusXMachina
      • And you are no surprise either

        You have nothing better than ad hominems.

        Troll
        woulddie4apple
      • RE: Apple's iPhone 5 likely to stress Foxconn

        @woulddie4apple

        you have nothing to add, period.
        DeusXMachina
  • Less battery life, higher defects

    Thinner design = shorter battery life
    Smaller = harder to make
    Dual core CPU = even less battery life
    Built as quickly as possible = lower quality
    25 million units = even less quality control

    This is NOT looking good.
    CathyCC
    • More Battery Life, Higher Satisfaction!

      @CathyCC - You must be right; Apple has never engineered products that are thinner, smaller, lighter, under a production deadline or high volume without sacrificing the battery life; except the iPod, iPhone, iPad and Mac Air. Wait a minute, yes they do!
      Gr8Music
    • These points are mostly inaccurate: 1) there is no way Apple would do next

      @CathyCC: ... iPhone with less battery life. So the battery life will be at least the same or better. Thinning does not need to be translated to shorter battery life at all -- iPhone 3Gs to iPhone 4 proved that.

      2) possible;

      3) no, since second core is almost always turned off on regular task such as iOS UI operations or browsing. And even when two cores are on, there is complicated scheme of power control that allows run only specific parts of cores which relate to actual work.

      4) no, speed of production in not related at all to quality control in contemporary manufacturing, since the slowest part is assembling device, not checking electric circuits et cetera.
      DDERSSS