Taiwan's Foxconn Technology Group, known for assembling Apple's iPhones and iPads in China, plans to use more robots, with one report saying the company will use one million of them in the next three years, to cope with rising labor costs.
Foxconn's move highlights an increasing trend toward automation among Chinese companies as labor issues such as high-profile strikes and workers' suicides plague firms in sectors from autos to technology.
Contract manufacturers such as Foxconn, which also counts Dell, Hewlett-Packard and Nokia among its clients, are moving parts of their manufacturing to inland Chinese cities or other emerging markets.
They are also boosting research and development investments to lift their thin margins.
Workers' wages are increasing so quickly that some companies can't take it longer, said Dan Bin, a fund manager at Shenzhen-based Eastern Bay Investment Management, which invests in technology and consumer-related shares in China and Hong Kong.
Automation is a general trend in many sectors in China, such as electronics. Of course some companies will consider moving their manufacturing overseas, but it's easier said than done when the supply chain is here.
The China Business News on Monday quoted Foxconn Chairman Terry Gou as saying the company planned to use 1 million robots within three years, up from about 10,000 robots in use now and an expected 300,000 next year.
Foxconn, whose listed units include Hon Hai Precision and Foxconn International Holdings Ltd, issued a statement later saying Gou told staff at its campus in Longhua, China, that he planned to move its more than 1 million employees up the value chain beyond basic manufacturing work.
Foxconn, which has been plagued by a spate of workers' suicides in its Chinese factories since last year, plans to use the robots for simple assembly line procedures, the statement quoted its chairman Gou as saying.
Since last year, China has been struck by a series of labor-related issues, such as high-profile strikes and suicide cases at well-known companies as heady economic growth fueled the need for wage increases.
In southern China, auto and parts factories owned by Japan's Honda Motor and Toyota Motor went on strike.
Rising salary costs should be the key reason why Foxconn is doing this. This year's wage increase has been quite significant and I don't expect the pace to slow down next year, said C.K. Lu, a Taipei-based senior analyst at research firm Gartner.
If they don't do this, they will have to move their factories elsewhere.
At Foxconn, a worker fell to his death last month at a manufacturing plant in southern China, local media reported.
The worker's death was the latest in a series of apparent suicides by young migrant workers at its factory complexes in the past two years.
Foxconn employs about 1.2 million workers, one million of which are based in mainland China, the China Business News said.
The use of automation is driven by Foxconn's desire to move workers from more routine tasks to more value-added positions in manufacturing such as R&D, innovation and other areas that are equally important to the success of our operations, Foxconn said.
Foxconn plans to buy a set-top plant in Mexico from Cisco Systems and is looking into investing more in Brazil, where it is already making mobile phone handsets.
It has bought LCD TV plants from Japan's Sony Corp in Mexico in 2009 and Slovakia in 2010 and is in cooperation talks with a number of top Japanese hi-tech firms, including Sharp, Canon and Hitachi.
On Monday, Hon Hai Precision's Taiwan shares rise 3.3 percent, while Foxconn's cellphone maker unit Foxconn International's Hong Kong shares ended up 4.3 percent.
Shares of another of the group's unit, Foxonn Technology Holdings Ltd, which mainly makes casings, jumped 6.8 percent.
(Additional reporting by Argin Chang in TAIPEI and Melanie Lee in SHANGHAI Editing by Charlie Zhu and Vinu Pilakkott)