Top global consumer electronics brands including Apple (Nasdaq: AAPL), Nokia Oyj (NYSE: NOK), Google (Nasdaq: GOOG) and Amazon.com (Nasdaq: AMZN) all share a common problem: They're among the biggest customers of Taiwan’s Foxconn International (Hong Kong: 2038).
This week, Foxconn International, a unit of Hon Hai Precision Industry (Taipei: 2038), acknowledged to China Labor Watch, a New York pressure group, that it had employed “interns” as young as 14 who worked as long as three weeks in a factory in Yantai, Shenzen province.
“This is not only a violation of China’s labor law,” Foxconn announced. “It is also a violation of Foxconn policy, and immediate steps have been taken to return the interns in question to their educational institutions.”
Shares of Foxconn fell 1 percent to HK $2.93 (US 38 cents) on Wednesday. For the year to date, they’ve lost nearly 42 percent.
Foxconn, with 75,000 employees, and Hon Hai, with more than a million, mainly in China, serve the global electronics market. Ken Hui, analyst with Jefferies, notes that its top four clients are Sony Corp. (NYSE: SNE), Nokia, China’s Huawei Technology and Google’s Motorola division.
The big four, Hui estimates, account for as much as 90 percent of Foxconn revenue. Amazon, which has relied upon Taiwan’s Quana Computer (Taipei: 2382) for its Kindles and Kindle Fires, has awarded it new contracts and may tap it to build a smartphone.
Apple, the world’s most valuable technology company, relies upon Hon Hai for most of its iPhones and iPads. Earlier this year, Tim Cook, CEO of the Cupertino, Calif., company, hired the Fair Labor Association to investigate the company. A report found extensive abuses of overtime and minor offenses.
Cook, during his March visit to China, personally went to two Foxconn plants, including a new one in Zhengzhou Technology park in Hebei province, with a payroll of 120,000.
Last year, after reports of worker suicides and overtime abuses, the contract manufacturer denied all charges but this year changed its tone extensively.
As well, Cook’s visit, which included meetings with Chinese government officials, attracted great attention, because Apple has opened retail stores there and sells iPhones through the No. 2 and 3 mobile operators, China Telecom and China Unicom, and has talked to China Mobile, the No. 1 carrier, about selling iPhone 5 in 2013.
So far, the Fair Labor Association has reported, Foxconn has cured 284 of 360 problems. Still, the Zhengzhou plant, which assembles iPhone 5s, had a dispute with as many as 4,000 workers on Oct. 6.
Last month, workers at another Foxconn factory in Taiyuan rioted after a dispute with quality control inspectors. Some customers of the iPhone 5 have complained about dings in the iPhone 5’s aluminum case, which is processed and polished at the factory.
Chinese companies aren’t alone.
South Korea’s Samsung Electronics (Seoul: 005930) has also been accused by China Labor Watch of abusive practices at its China plants, as well as those of its contractors.
“One hundred hours of forced overtime work per month, unpaid work, standing for 11 to 12 hours while working, underage workers, severe age and gender discrimination” and other violations characterize Samsung, the pressure group said last month.
Samsung, also a major supplier to Apple, has acknowledged some of the complaints. “We partly agree with the report,” a representative said. “There are times when workers need to work overtime at some plants, especially when we launch new products.”
Samsung has reported third-quarter operating income nearly doubled to 8.1 trillion won (US $7.3 billion), largely due to demand for its new Galaxy S III phones and Galaxy tablets.
Shares of Apple fell 34 cents to $649.50 in midday Wednesday trading, whlle those of Google rose $10.50 to $755.37.