Five million iPhones were rumored to have been returned by Apple Inc. (Nasdaq: AAPL) to Foxconn International Holdings Limited (HKG: 2038), the troubled Taiwanese electronic manufacturer that has hit many rough spots over the past few years, and industry experts estimate this return will cost Foxconn at least one billion yuan ($162 million), about two thirds of its annual profit from Apple.
After multiple scandals of poor working conditions and workers suicides in recent years, the iPhone and other electronic manufacturer has hit another rough patch. Reportedly five million iPhones the company manufactured were returned by Apple for defective appearances and malfunctioning. Experts estimated that for this shipment, each of the iPhone will cost Foxconn 200 yuan to remanufacture, which could cost one to 1.6 billion yuan in extra costs for Foxconn. Given Foxconn’s annual profit for manufacturing iPhones is onl 1.5 to two billion yuan, then Foxconn has already lost 60% of that profit this year.
According to Yang Yingchao, an analyst at Barclays PLC (NYSE: BCS) Asia, this could be due to many key executives leaving Foxconn. Michael Chung, director of integrated Digital Product Business Group, the group in charge of producing iPhones at Foxconn, has been on leave since the end of 2012 and his temporary replacement, Chung Cheng-yu, left the company in March. In addition, Cheng Hui-long, the current director of the group, comes from other groups in the company and has never dealt with Apple products, therefore lacking in experience and relationships with the client.
These changes, in Yang’s view, could be causing the recent production problems Foxconn has experienced.
After the Sichuan earthquake this past weekend, Foxconn donated 50 million yuan to help the people afflicted by the earthquake. Many netizens are saying this is an effort to win back the public.