Faulty iPhones could cost Foxconn millions

Faulty iPhones could cost Foxconn millions

Summary: [UPDATE] Foxconn may have to pay a labor cost of 200 yuan (US$32) a piece, which adds up to about 1.6 billion yuan (US$256.8 million) for 8 million faulty units. A company spokesperson denies the report though.

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Foxconn may end up spending up to 1.6 billion yuan (US$256.8 million) to replace as many as 8 million pieces of faulty iPhones.

According to a China Business Journal report published on Saturday, Apple on March 15 returned 5 million iPhone units to Foxconn due to problems over appearance and functions. Citing a source from Foxconn who spoke on the condition of anonymity, the report said the total number of returned iPhones could be as many as 8 million.

Foxconn may have to pay a labor cost of 200 yuan (US$32) a piece, which adds up to about 1.6 billion yuan (US$256.8 million) for 8 million faulty units, if the company is required to "re-manufacture" the faulty phones by using some of the original parts and replacing faulty ones. It is equivalent to two thirds of the 2012 profit generated by Foxconn's integrated Digital Product Business Group (iDPBG), which makes iPhones for Apple and is the company’s most profitable group.

"It is not the first time that such quality control problems occur," said the source. "The fast growth and expansion of the production brings huge challenges to the newly promoted and management staff."

The iDPBG has been trying to address quality control issues since end-2012 by changing its directors from Michael Chung to Chung Chengyu, and to the current Chen Huilong. However, Chen was said to lack experience in dealing with Apple, Foxconn's top customer, noted Ben Reitzes, a Barclays Capital analyst, in a Business Insider report on Saturday.

Foxconn suspended the production of iDPBG's three factories in the Chinese cities of Shenzhen, Zhengzhou, and Taiyuan, from April 7 to 15. Apple also sent in investigative staff to help increase the quality production rate. Currently, only 1,000 to 2,000 pieces of iPhones are produced each day by every production line, but the final production rate remains at a low level of 95 percent.

In a separate report by Focus Taiwan last Saturday, a Hon Hai spokesperson, Simon Hsing, denied the figures mentioned in the China Business Journal report. He did add the company will look into issues of management and product yield rate mentioned in the report. 

Hsing was responding to the China Business Journal report which also noted a Foxconn subsidiary, Futaihua Precision Electronics, had begun producing iPhones with each of its assembly liness expected to manufacture up to 2,000 units a day. The plant's yield rate is only at 95 percent though, the report noted.

Topics: Smartphones, Apple, iPhone, China

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21 comments
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  • iPhone defects?

    Nice job spreading some more Samsung FUD about Apple.
    commun5
    • See!

      Proof positive that it must be a conspiracy! ;-)
      Can't make this stuff up!
      martin_js
      • iPhone flaws

        Very easy to make this stuff up. Check out DigiTimes.
        commun5
        • Ah, I was being Pedantic!

          Don't take things so seriously!
          martin_js
    • Impossible I know

      Impossible I know but the article is actually attempting to shift blame to Foxconn and no where did it mention Samsung which is strange you would consider it "Samsung FUD". Reading comprehension is important commun5.
      Dan Lomeli
    • Knee Jerk Reaction

      "Apple on March 15 returned 5 million iPhone units to Foxconn due to problems over appearance and functions."
      Apple returned the phones, to their credit before customers got them and returned them.
      What in the universe did Samsung have to do with Cupertino's proper and business like decision?
      You are a disgrace to legitimate Apple aficionados.
      PreachJohn
  • That can't be right!

    Apple fanboi's are always telling us "they just work" couldn't possible have 8 million faulty iPhones. Must be a conspiracy! lol
    martin_js
    • Samsung phones

      Must have missed that article about the low defect rate for Samsung's phone subcontractors.
      commun5
      • Nope, didn't look for it!

        For that matter I didn't look for this one and to be perfectly honest I don't care.
        Of course Apple products are faulty from time to time, same for Samsung, Nokia or any other hardware/software device.

        I don't even own a smart phone, but I get a laugh hearing fanboi's of any product saying silly statements and never admitting there precious product is never faulty and would never happen. Me thinks you complain to much, chill out a bit and all will be ok in the world. 8-)
        martin_js
      • Re: Samsung's phone subcontractors

        Samsung make their own.
        ldo17
        • Re: Samsung's phone subcontractors

          You're wrong. http://www.euroinvestor.com/news/2012/08/10/samsung-electronics-investigates-child-labor-allegations-at-china-subcontractor/12064772.
          commun5
    • Multiple failures...

      We have a "fleet" of 6 iPhones at work, we've had 8 replacement phones over the last 2 years, excluding those that were dropped and the screen broke.

      The biggest problems are Wi-Fi and Bluetooth not working, or batteries failing (2 were DOA).
      wright_is
      • Employed by Samsung!

        Samaung Paid students and employees to report similar fake issues with HTC.
        scdt_98
        • Proof or a Link

          Serious allegation like this demands substantiation.
          PreachJohn
        • ROFL

          Erm, I have an iPhone and an htc Sensation, plus the company Samsung. No kick backs from any smartphone manufacturer here.
          wright_is
    • There's a simple explanation to the "It just works"

      If you overpay on something it just "has to work" and you'll apologize forever if you do not have to admit you got ripped off. I'm typing away on a macbook and took many trips to the genius bar to get things fixed. I finally think everything defective has been replaced but if it really just worked you wouldn't need something called a "genius bar".
      Dan Lomeli
      • Employed by Samsung!

        Another Samsung Employee!
        scdt_98
  • relax guys.

    It happens to every company once in a while. Its not because samsung played dirty recently that they are behind this... Also, the article is detailed and it does not look like he's spreading FUD... My father once had a faulty BMW and a 50 000$+ car is supposed to be flawless, but sh*t happens.
    Throw All The Things
  • Foxconn's Prices Will Have To Go Up

    Foxconn clearly bid too low, given Apple's finicky requirements. Look for the quote to go up come contract renewal time.

    And where else is Apple going to go?
    ldo17
  • FUD

    Why anyone thinks this is in anyway notable, I can't imagine.
    For a start, you surely don't think Apple or anybody else, returns each one individually to the maker? no, they stockpile them and batch return by the crate.
    Secondly, think about the numbers. 5000 out of say 50 million over two quarters would be 0.01% failure rate. If the period or total numbers are increased, it is literally one in a million...which is amazing.
    Rediculous story.
    frogspaw