Big Pain, No Gain: Hon Hai’s Challenging Apple Deal

How is it that Apple enjoys such financial success from the iPad, yet Hon Hai — which manufactures the device — enjoys so little?

The reason’s simple, says Hon Hai Chairman Terry Gou: The iPad is really hard to make.

“It’s very difficult to make Apple’s new products and while our cooperation with Apple has given us many opportunities, it has also posed many challenges,” Gou said during a company shareholder conference today. “But we’re confident in our manufacturing because our defect rate of some super-thin products, including handsets and touch models, is under 5 percent, which is better than our rival, Samsung Electronics.”

But evidently not good enough to keep the company’s financials where investors would like them. Between 2005 and 2010, Hon Hai’s operating margin fell to 2.87 percent from 5.43 percent. Gou is working actively to change this, but obviously it’s slow going.

[Image credit: iFixit]