Poison Apple?

Move over, Foxconn. First Pegatron and now Jabil have joined you on the Apple-watcher hit list.

In June, the New York-based employee rights group known as China Labor Watch singled out three Pegatron sites for worker abuse. The alleged violations are now like a refrain: excessive overtime, harsh working conditions and employment of underage workers.

Today it was Jabil’s turn, as its Green Point unit in Wuxi drew CLW’s ire. Perhaps most concerning is the accusation that Jabil workers must agree to a “list of punishments.” That sounds sickening and demeaning.

The common thread, of course, is Apple, whose corporate standards are apparently more for show than practice.

Chinese law prohibits more than 49 hours of work per week. Yet the CLW report shows 80% of the 80 Jabil workers interviewed put in more than that. While both Apple and many workers claim they want the overtime, the sad truth is they need to work the extra hours in order to make sufficient wages. Yet with Apple sitting on more than $100 billion in cash, it’s illogical to argue that company needs to suppress wages in order to make its iPhones and related products affordable to Western consumers.

Just 18 months ago, then Jabil CEO (and now chairman) Tim Main excoriated Foxconn for its “very abusive policies, employment policies.”

“I think their business will begin to suffer because of the way they treated their employees,” Main told Jabil shareholders. “And you can all be quite comfortable and proud that, you know, that’s not your company. We treat people like human beings like we want to … treat our own kids. So you don’t have to worry about that with us.”

Sadly, CLW’s report says something very different.

At the time of Main’s comments, Apple had just become a 10% customer of Jabil. Now, Apple is estimated to make up 13%, or $2.23 billion, of Jabil’s annual revenue. So like Foxconn and Pegatron, does serving Apple necessarily cost a company its soul?

Correlation is not causation, but the circumstantial evidence is getting mighty difficult to ignore. Will any EMS company be able to resist the temptation of Apple’s poisonous riches?


Mike’s Main Man

He wasn’t yesterday, and he might not be tomorrow, but for today, Tim Main is my hero.

The Jabil chief today became the first major electronics executive to publicly rebuke Foxconn, the world’s largest EMS company. At its annual shareholders meeting, Main asserted that Foxconn has “some very abusive policies, employment policies. And I think their business will begin to suffer because of the way they treated their employees.”

OK, so it doesn’t rise to the level of Occupy Shenzhen, but for our little tightly wound industry, this ranks as an outburst. And there is perhaps some risk involved in making such statements. Jabil has been taking on a bigger helping of Apple’s pie, with Main today suggesting the visionaries behind the iPad and iPhone now represent more than 10% of the contract assembler’s revenue. Foxconn’s success has been tied in so small part too that of Apple’s and vice versa. For Apple to cut the cord, or even let it fray a bit, would run directly against the many years of staunch support for its China CM.

Then again, perhaps Jabil’s gains are coming at Foxconn’s expense, and Apple is basing its procurement decisions not just on cost and execution but also other, more humane factors.

Or so we can hope.

Way to go, Tim.

Main Man

Dear Tim Main,

Thank you for your willingness to leave, in your words, $50 million to $75 million in potential sales “on the table” during your November quarter.

We understand material shortages always are frustrating, and it’s ever-so-tempting to cut corners by poking in the dark nooks and crannies of the industry looking for spare parts.

For it is said parts that tend to be, how to say it nicely, “faked.” And bad parts tend to do bad things, like fail in the field. That’s exactly what gets manufacturing companies in trouble — and engineers and purchasing people fired.

That extra $50 million to $75 million in revenue will make your February quarter look that much better. And while your customers might not be pleased, your customers’ customers — aka me — will be.

No Main Point

Check out this exchange from Jabil’s recent quarterly conference call:

Alexander Blanton (Ingalls & Snyder analyst): Okay, second question is you mentioned earlier the possibility that some manufacturers initially might decide to move some things in-house. Do you have any examples of that in your business?

Timothy L. Main (Jabil CEO): I think the one that’s been well-publicized is the Nokia announcement three, four months ago. … Other than that, we don’t have any significant customer accounts that [inaudible] that type of move.

Blanton: Because recently NCR announced that they would in-source some ATM manufacturing and as I can determine, the reason they are doing that is so they can get some tax incentives from the State of Georgia that require a certain number of jobs to be created in the State of Georgia. And it really has nothing to do with the economics actually of in-sourcing. But there was some comment accompanying that in some of the local press that oh, there’s a trend toward in-sourcing. But from what you can tell, is there any such thing?

Main: I don’t think there’s any such thing. I might have mentioned NCR but I’m glad you brought it up. I forgot that that was a public statement that they made, so — you know, these OEMs will have certain drivers, different personalities, and opportunities like NCR has to receive significant tax benefits for an activity that maybe they think can be supported domestically within their own site. [If you take] a couple of data points, a $1 trillion dollar industry and say that’s a trend, I don’t think so.

Blanton: Yes, well, there was a bill in the State of Georgia that if you can create 1800 jobs or more, you can get some tax incentives. Well, the only way they could do that was to in-source this ATM manufacturing because they didn’t have enough people coming from Dayton to meet the 1800 bogey. This is not the way the press presented it but it’s obviously the case, so it had really nothing to do with lowering costs or anything like that.

Main: Right, well, the politics that we are in today are going to really be very negative towards outsourcing and that type of thing. I mean, that’s — let’s just accept that but recognize that the trend to out-source and the cost benefit of out-sourcing are so compelling that these temporary political statements I think will impact the temporary and the broader economic force of what compels OEMs to do what they do will prevail.

Blanton: Well, you are absolutely right. The CEO of NCR bragged that oh, we’re bringing jobs back from overseas when in reality, they are coming from South Carolina.

Egged on by a so-called analyst, Main essentially discounted any trend toward insourcing. But both men completely ignored the recent decision by Alcatel-Lucent to insource an estimated $2 billion worth of assembly. And it misses Ericsson’s announced purchase of certain Elcoteq operations. Moreover, it dismisses the role governments play not just in convincing OEMs to locate operations in their jurisdictions, but EMS companies as well.

In fact, just last year, the state of Florida, along with various local governments, granted almost $35 million in tax incentives to keep Jabil in St. Petersburg. How, exactly, is that any different than what Georgia is doing for NCR?

If Main has a point, it must be hidden under his hat.