Hon Hai Precision Industry

Hon Hai Precision Industry Co., Ltd. (trading as Foxconn) is the world's biggest maker of electronic components. Primarily an original equipment manufacturer, its clients include major some of the world’s best known electronics and information technology companies, and products manufactured at its plants include iPads, iPhones, iPods for Apple, Kindles for Amazon, PlayStations for Sony and Xboxes for Microsoft. Foxconn has been involved in several controversies, largely over employee relations in China after a series of suicides and accidents. In 2012, Apple hired the Fair Labor Association to conduct an audit of working conditions at Foxconn.

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Hon Hai plan to deploy 1m robots faces delay, says analyst

Hon Hai chairman's talk of beating higher labour costs by speeding up automation is thwarted by high cost and limited supply

PUBLISHED : Wednesday, 03 October, 2012, 12:00am
UPDATED : Wednesday, 03 October, 2012, 10:34am

Efforts by Hon Hai Precision Industry, Apple's main manufacturing contractor, to accelerate automation at all its plants worldwide are being stymied by the high cost and limited supply of industrial robots.

Terry Gou Tai-ming, the founder and chairman of Taiwan-based Hon Hai, said in July last year that large-scale automation was the company's "secret weapon" against rising labour costs in its industry.

The big target for Hon Hai was to deploy 1 million industrial robots by next year after installing 300,000 this year. It had about 10,000 robots at the end of last year.

But a recent study by Bernstein Research found that automation will not help Hon Hai offset rising worker salaries in the medium term.

Senior analyst Alberto Moel said Bernstein developed an economic model and break-even analysis of potential industrial automation at Hon Hai's assembly lines.

That study found that the cost of Hon Hai's large-scale automation plan "would be unprecedented" for both the firm and the global manufacturing sector.

Hon Hai owns and operates dozens of electronics manufacturing subsidiaries, collectively known under the trade name of Foxconn Technology Group. It employs more than 1.2 million workers on the mainland, which makes the firm the biggest private sector employer in the nation.

The group has faced several wage rises to meet labour demands on the mainland and to comply with commitments under a remediation plan drawn up by the Fair Labour Association, an Apple-sanctioned independent auditor.

In Bernstein's analysis, an estimated "high automation scenario" for Apple's iPad assumed that 80 per cent of the steps to assemble the device are automated and 20 per cent continue to be done by workers.

Hon Hai is the sole manufacturer of iPads and makes 90 per cent of iPhones.

Moel said one of the biggest uncertainties in Hon Hai's mass deployment of industrial robots was their price. Robots now cost between US$50,000 to more than US$200,000, excluding deployment charges and maintenance costs.

Bernstein calculated that robots would have to cost about US$25,000 to make economic sense for Hon Hai to use as replacement for humans in its production lines.

"Otherwise, the total cost of owning a robot would be higher than continuing to pay increasingly higher monthly salaries," Moel said.

Hon Hai's annual capital expenditure has consistently been less than US$3 billion, except for US$4.5 billion spent last year to build new production lines in China's hinterland.

"It is unlikely that Hon Hai will exceed the capex levels of 2011 given the uncertain economic and market environment," Moel said.

Hon Hai's plan for large-scale automation also hinges on the production capacity of existing makers of industrial robots. Bernstein estimates just 190,000 industrial robots will be built globally this year.

"This tight supply will delay Hon Hai's purchase schedule," Moel said.

He also pointed out that any large cuts in mainland employment "would create political and social instability" for Hon Hai, which enjoyed preferential tax breaks and governmental policies in building new facilities in Chengdu and Zhengzhou.

Data from trade group the International Federation of Robotics showed that about 55 robots were installed per 10,000 workers in the global manufacturing industry last year.

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