Sources close to Apple suppliers Foxconn and Quanta tell Taiwanese trade mag DigiTimes that there’s little concern that the leadership transition that occurred at Apple this week will affect their relationship with it. And really, there’s no reason to think otherwise. Apple’s deals with its Asian supplier partners and contract assemblers are likely firmly established for at least the next year, and newly minted CEO Tim Cook was almost certainly involved in their negotiation.

Indeed, Foxconn, which assembles the iPhone and iPad, says its partnership with Apple is solid.

“Foxconn has had a long and very successful partnership with Steve Jobs, Tim Cook and the entire Apple team for many years and we look forward to working with Steve and Tim in their new positions within Apple,” Foxconn said in a statement to AllThingsD. “We have every confidence in Apple’s leadership and its ability to continue to innovate and to drive much of the global technology industry’s growth. Steve has built a great company and a great management team and we wish him all the best as he transitions to chairman of the board of Apple.”

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Foxconn has in recent years seen its share of negative press. There was an explosion that killed three people at one of its plants in June. Prior to that there was a disturbing string of suicides that so shocked the sensibilities of Western consumers that it prompted demands for better working conditions and two lengthy cover stories in Wired and Bloomberg Businessweek. The concern was significant, in no small part because of the shadow the matter cast over Foxconn’s most prominent customer, Apple, which has done its best to force Foxconn to make the lives of its workers better.

Manufacturing electronics by the millions isn’t exactly mentally stimulating. The Wired story used the phrase “repetitive, exhausting, and alienating,” and it’s not hard to imagine going stir-crazy after doing it for any length of time. That’s why it’s interesting to see the news out of China today that Foxconn is going to boost the number of robots doing those repetitive tasks on its assembly line.

The story from Xinhua News, China’s state-controlled news agency, is headlined “Foxconn to replace workers with 1 million robots in 3 years,” and relates that the announcement came from Foxconn CEO Terry Gou himself at a company dance party.

Eerily absent is any comment on the reaction of those employees in attendance. Did they cheer at the thought of being freed up by robots from the least-popular jobs on the line? Or did they begin to worry anew, grasping the economic realities that additional factory automation bring with it?

Robots are efficient, they don’t get tired, and aside from routine maintenance, they don’t take breaks. They also don’t complain about soul-killing work conditions. All of this makes them appealing to Foxconn management and its growing list of clients.

But as anyone who knows even the barest details of the history of factory automation in the U.S. auto industry is aware, robots have a funny way of causing job losses. While Foxconn already uses some 10,000 robots now, the story says, the number is going to multiply by a factor of 100, to one million robots within three years. If those numbers turn out to be accurate, there is simply no mathematical way that some portion of the 1.2 million people currently in Foxconn’s employ can avoid losing their jobs. And that can’t help but cause other unexpected ripple effects throughout the Chinese economy.

(The image is a screen grab from the trailer for the 2004 Will Smith film “I, Robot,” which I obviously selected with tongue in cheek. Real robots used in the assembly of electronics look more like the one assembling cellphone speakers in the video below, from a Florida-based company called AccuPlace.)

“Industry insiders believe that Pegatron has a good chance to win this [iPad] business, because of its integrated production network specifically for the production of tablet PCs,” the publication explains. “Already, the company has produced three or four different models of tablet PCs and e-book readers for several globally prominent customers, including Asus and Toshiba. Further, the increasingly close partnership that Pegatron has built up with Apple after a year of cooperation in the production of the iPhone’s CDMA edition will also encourage Apple to place orders with Pegatron for the iPad 3.”

Not an entirely unexpected move, as Apple had been rumored to be considering lining up additional manufacturing partners in hope of tempering the supply constraints that have plagued iPad launches in the past. As Apple COO Tim Cook said during the company’s recent earnings call, “We sold every iPad 2 we could make this quarter. There is no shortage of demand.”

Presumably, adding a second manufacturing partner would increase supply, allowing Apple to satisfy that demand and driving its profits even higher. And an arrangement like this will also go a long way toward mitigating the company’s vulnerability to supply chain disruptions, whether they be caused by natural disasters or tragic industrial accidents.

[Image credit: Appertunity]

Of those leaving the company, 2,100 are taking a voluntary retirement buyout package that’s been made available to people whose age and years of service add up to a sum of 50 60. For example, an employee 40 50 years old with 10 years at Cisco would be eligible. An additional 4,400 will lose their jobs outright, but will no doubt receive severance packages. The remaining 5,000 or so are employees of a Cisco plant in Mexico that is being sold to Foxconn, the Taiwanese contract manufacturer. They will become Foxconn employees.

These reductions are the third significant step in what’s expected to be a four-step process, spearheaded by CEO John Chambers, to get Cisco on a leaner, more competitive and more profitable path. Analysts are, so far, fairly positive on the cuts.

Brian Marshall of Gleacher & Co. in San Francisco, who last week predicted that Cisco would cut 5,000, gave a tentative thumbs-up to the move. Cisco’s goal throughout the process has been to take out $1 billion in annual operating costs. Marshall says that it looks like Cisco could do better than that: He thinks the cuts could yield $1.7 billion in savings and add 25 cents in per-share earnings to the bottom line in 2012.

Breaking it down, he says the 6,500 jobs cut could result in $1.3 billion in savings from retirements and firings, assuming a cost of about $200,000 per head. The sale of the facility in Mexico will yield about $400 million in reduced cost of goods sold (COGS).

The next step, which Marshall expects in September, will be for Cisco to recalibrate its long-term financial expectations. Long accustomed to telling Wall Street to expect in the 12 to 17 percent range, the more realistic range for Cisco, Marshall says, is now closer to 10 percent, plus or minus a few points. Gross margin expectations will have to come down, too, to about 25 percent, down from a range of 28 to 31 percent.

Shaw Wu of Sterne Agee in San Francisco called the reductions “painful but necessary.” He notes that Silicon Valley hiring has been pretty strong of late and that those Cisco folks losing their jobs should have little trouble finding work at companies like Facebook, Apple or Google, though I’d suggest that Hewlett-Packard’s up-and-coming networking unit or Juniper will be eager to pick up some Cisco talent.

On the sale of the factory to Foxconn, Wu sees Cisco as winding up for a spin-off of the set-top box business. “We view the Foxconn transaction as effectively a restructuring of its lower margin set-top box business and think ironically, could make a potential future spin-off easier with the manufacturing detached.”

Update: A few of you have written to say my initial characterization of the retirement package terms was incorrect. The required sum of age plus years of service is 60, not 50. Sorry about that.

“While the investigation into the tragic explosion that took place at our facility in Chengdu is ongoing, we have addressed the preliminary finding, that the accident was likely due to an explosion of aluminum dust in a ventilation duct, by putting in place improvements in workshop ventilation, a total revamping of the policies and practices related to the disposal of that dust, and through the application of new technologies that will further enhance the safety in these workshops,” a Foxconn representative said in a statement to AllThingsD.

Foxconn has reopened the plant, which is believed to manufacture the iPad.

Here is their full statement:

Following the tragic explosion in one of the polishing workshops in our Chengdu campus on Friday, May 20, we carried out a detailed and thorough review of all related safety policies and procedures in the polishing workshops of all other Foxconn operations. While the investigation into the tragic explosion that took place at our facility in Chengdu is ongoing, we have addressed the preliminary finding, that the accident was likely due to an explosion of aluminum dust in a ventilation duct, by putting in place improvements in workshop ventilation, a total revamping of the policies and practices related to the disposal of that dust, and through the application of new technologies that will further enhance the safety in these workshops.

Our review and assessment in determining the enhancements covered the areas from the actual polishing work that is done by high-tech robots to the disposal of the aluminum dust that is a by-product of that process. The new measures we are employing in our workshops, which have resumed operation following the review referred to above, are a direct response to our efforts to ensure that we are applying the highest possible safety practices. Should the investigation identify any additional areas where enhancements could be made, we will not hesitate to immediately implement those measures.

“While the investigation into the tragic explosion that took place at our facility in Chengdu is ongoing, we have addressed the preliminary finding, that the accident was likely due to an explosion of aluminum dust in a ventilation duct, by putting in place improvements in workshop ventilation, a total revamping of the policies and practices related to the disposal of that dust, and through the application of new technologies that will further enhance the safety in these workshops,” the company said in a statement (full text here). “The new measures we are employing in our workshops, which have resumed operation following the review referred to above, are a direct response to our efforts to ensure that we are applying the highest possible safety practices. Should the investigation identify any additional areas where enhancements could be made, we will not hesitate to immediately implement those measures.”

The plant’s reopening should allay further concerns about shortfalls in iPad production capacity, though as Ticonderoga Securities analyst Brian White notes in a message to clients this morning, this doesn’t mean that Apple’s out of the woods yet.

“…Our meetings today indicate that the Chengdu facility has been held back by yield issues on certain outside components; thus, the operation may not have reached the optimal utilization rate,” White explains. “Therefore, the explosion in Chengdu may result in more of an equilibrium situation with certain component vendors, rather than a shortage situation. Netting this all out, we believe the production of iPad 2 will be supply constrained during the June quarter; however, we are not prepared to place the bulk of the blame on the Chengdu operation.”

But according to IHS iSuppli, that’s a best-case scenario. The research outfit offers a decidely less optimistic view of the incident, suggesting that the disruption at Foxconn could cost Apple as many as half a million iPads.

“Total iPad 2 production capacity at the Chengdu site amounts to about 500,000 units per month,” iSuppli reports. “If the explosion results in a production shutdown until the end of June—which may or may not happen, depending on the outcome of the still-pending investigation—a production stoppage of half a million units could result.”

The longer the production suspension lasts, the greater the impact on inventory. And at present Foxconn has closed all facilities like those at which the explosion occurred pending further inspections.

“Our current view is that this tragedy is likely to have some impact on iPad 2 production; however, we believe [Foxconn] has the flexibility to shift manufacturing back to the Shenzhen facility if necessary,” Ticonderoga analyst Brian White said in a note to clients. “As such, we currently don’t expect a material impact to Apple’s iPad 2 shipments.”

Stern Agee analyst Shaw Wu echoed White’s take in a note of his own, dismissing concerns that the blast will materially impact iPad production as overdone. “From our checks with industry and supply chain sources, there are at least two facilities that produce iPads (the other being Shenzhen) with plans to add more,” he wrote. “Our sources indicate that production is being ramped at Shenzhen to make up for a potential shortfall at its Chengdu plant.”

Meanwhile, iPad ship times continue to hold steady at 1-2 weeks, the same shipping window they had before the explosion.

[Image credit: Kominyetska/Flickr]

PREVIOUSLY

• Third Foxconn Worker Dies Due to Explosion, Apparently Caused by “Combustible Dust”
• Apple Says Working With Foxconn to Explore Cause of China Explosion

A third worker has died from an explosion at a Foxconn plant in China that makes Apple products, the contract manufacturer said on Sunday.

The company said it is still investigating the blast, but said initial findings suggest “that the accident was caused by an explosion of combustible dust in a duct.”

Foxconn said it has halted production at that plant and similar plants pending the investigation. The facility is believed to make Apple’s iPad.

Statement from Foxconn Technology Group

Update on the Tragic Accident at Foxconn Technology Group’s Hongfujin Precision Electronics (Chengdu) Co. Facility

Foxconn can confirm that, sadly, a third employee has died from injuries from the May 20 explosion at one of the polishing workshops at our company’s Hongfujin Precision Electronics (Chengdu) Co. Ltd. facility in Chengdu.

Fifteen other employees were injured in that accident and six of those employees have been treated and released from the hospital. Foxconn is working with medical professionals and the local government to ensure that all of the injured employees receive the highest quality medical treatment. Our condolences go out to the families of the deceased employees and they are being given the full support of the company. Our thoughts are also with the injured employees and their families who are also being given the full support of our company at this very difficult time.

The cause of this tragic accident is still being investigated by a joint investigation task force led by government officials and law enforcement authorities, but that task force has communicated initial findings that the accident was caused by an explosion of combustible dust in a duct. Foxconn is cooperating fully with all relevant government bodies to carry out a full investigation into the specific root cause of the accident and the company is taking all necessary actions to ensure the safety of employees at this and all other production facilities.

All operations at the affected workshop remain suspended and production at all other workshops that carry out similar processing functions have also been halted pending the results of the investigation into the cause of the Chengdu accident. All other production operations in our facilities in China continue operating normally.

Foxconn Technology Group will provide updates on this tragic accident as information becomes available.

At least two people died in the explosion and 16 were hurt at the blast in Chengdu, China, according to a Wall Street Journal report. According to various reports, the plant is the one where Apple makes its iPad 2 tablets.

“We are deeply saddened by the tragedy at Foxconn’s plant in Chengdu, and our hearts go out to the victims and their families,” Apple said in a statement provided to All Things D. “We are working closely with Foxconn to understand what caused this terrible event.”

Apple declined to say what the impact to production might be, or comment beyond the statement.

UPDATE: In a statement sent to All Things D, Foxconn said:

We can confirm that at approximately 7 pm on May 20, there was an explosion at our Chengdu campus. At this point, we can also confirm that there were two fatalities with injuries to 16 other employees. We are working with medical officials to provide treatment to the injured employees and we are working with government and law enforcement officials to contact the families of all employees affected by this tragedy.

The situation has been brought under control by the fire department and the cause of this explosion is being investigated by local police officials. Foxconn is cooperating fully with that investigation. Production has been suspended at the site of the explosion until the completion of the investigation. The safety of our employees is our highest priority and we will do whatever is required to determine and address the cause of this tragic accident.

The blast, at a Foxconn plant in Chengdu, China, killed two people and injured at least 16, according to the Wall Street Journal. Foxconn is a contract manufacturer that builds tech gear for a variety of companies, including Apple.

Chinese TV showed black smoke billowing from the plant, according to video posted on Chinese tech site MIC gadget.

An Apple representative was not immediately available for comment.

Shares of Apple were changing hands recently at $337.62, down $2.91, or 0.85 percent.

Upstream component suppliers tell occasionally reliable Taiwanese trade mag Digitimes that labor and material shortages at Foxconn’s Chinese plants could undermine Apple’s aggressive iPad 2 shipment goals in the current quarter. Evidently the catastrophe in Japan has caused a shortage of both power amplifiers and memory for the tablet. That, combined with a lack of manpower at Foxconn’s Chengdu facility, is making it difficult for the manufacturer to satisfy Apple’s orders for 2.5 million to 3 million iPad 2s each month in the second quarter. Which is not to say that the company will fail to meet them–Foxconn says it’s doing all that it can to satisfy its clients’ needs–just that it’s more of a struggle than it might have been otherwise.

So the situation at Apple’s overseas manufacturing partners continues to be uncertain, just as the company said it would be during its last earnings call. “I am confident we’re going to produce a very large number for the quarter,” COO Tim Cook said. “Whether that will be enough to meet demand, I don’t know.”

Meanwhile, iPad ship times at Apple’s online store remain at 1 to 2 weeks.

PREVIOUSLY:

• Apple Supply Chain on Solid Ground Despite Japan Quake
• Apple “Aggressively Attacking” Supply Chain Situation in Japan
• Three Key iPad 2 Parts Available Only From Japan
• Apple’s Component Deals Should Help It Weather Japan Crisis

According to sources close to the situation, Intel Capital and Advance Publications will lead a $30 million investment round in Kno, the high-profile student tablet start-up.

In addition to the funding from its venture capital arm, Intel itself will consult with Kno on its tablet design. Kno, which is getting out of the hardware business, will now focus on its software to manage the devices that are aimed at the college market.

Intel will not manufacture tablets either. Instead, its engineers will consult with Kno on power management, graphics, display, systems integration, which it does for a variety of its customers.

Along with Intel Capital and Advance, current investors will also participate in the round, said sources. But Intel Capital and Advance, the owner of the Condé Nast publishing empire, make up a big part of the funding.

Sources said Intel Capital’s investment is $20 million and Advance and others make up the rest of it.

BoomTown reported in February that the much-funded and high-profile Silicon Valley start-up–aimed at making tablet computers focused at students–was considering selling off the entire hardware part of the business.

Sources said Kno execs have recently decided that the quicker-than-expected uptake in tablet production by a multitude of powerful device makers had made its efforts to package a seamless offering less critical.

Instead, the company will now focus on its robust software and services to offer students on the Apple iPad, as well as upcoming tablets based on Google’s Android mobile operating system and others.

The move is a dramatic shift for the company, which had not shipped significant numbers of the touchscreen device as it has long touted.

In fact, Kno said in November that it would ship a $599 and $899 version of the tablet by the end of the year.

The lower price was for its single-screen device, while the clamshell double-screen version was more expensive.

And, although it has been reported no pre-orders were fulfilled, Kno did indeed ship several hundred of them, built by China’s Foxconn, before stopping doing so earlier this year.

Many have been dubious about Kno’s ambitious hardware efforts.

That’s because marketing a new and complex product like the Kno takes a lot of effort and cash, especially since it is an increasingly competitive market for mobile and portable computing products that includes Apple, Microsoft, Hewlett-Packard, Google, Amazon, Dell and many others.

Before this $30 million, Kno has raised another $46 million in funding to add to an earlier $10 million round.

Sources in February said that the Santa Clara, Calif.-based company considering going back out to raise even more.

Its current backers include prominent venture players like Andreessen Horowitz and First Round Capital, along with angel investors Mike Maples and Ron Conway.

Sources said the shift to deliver textbook and other student-related delivery system would be a better path for all that investment money, since Kno has established a wide range of partnerships with colleges and universities.

In addition, Kno co-founder Osman Rashid has a lot of experience in digital education market. He was also the co-founder of Chegg, the textbook rental business that is reportedly aiming for an IPO soon.

BusinessWeek was first to report that Intel Capital was making the investment in Kno, but the post did not mention Advance’s involvement or that Intel itself was licensing the hardware design business from Kno.

Kno–the much-funded and high-profile Silicon Valley start-up aimed at making tablet computers focused at students–is considering selling off the entire hardware part of the business and is in talks with two major consumer electronics manufacturers to do so, according to sources close to the situation.

Sources said Kno execs have recently decided that the quicker-than-expected uptake in tablet production by a multitude of powerful device makers had made its efforts to package a seamless offering less critical.

Instead, the company will focus on its robust software and services to offer students on the Apple iPad, as well as upcoming tablets based on Google’s Android mobile operating system and others.

BoomTown could not determine which two companies Kno was in serious discussions with about unloading its hardware business, but the company has signed an NDA with one of them.

But, if a deal is struck, the move would be a dramatic shift for the company, which has yet to ship significant numbers of the student-focused touchscreen device as it has long touted.

In fact, Kno said in November that it would ship a $599 and $899 version of the tablet by the end of the year.

The lower price was for its single-screen device, while the clamshell double-screen version was more expensive.

And, although it has been reported no pre-orders were fulfilled, Kno did indeed ship several hundred of them, built by China’s Foxconn, before stopping doing so recently.

Many have been dubious about Kno’s ambitious hardware efforts.

That’s because marketing a new and complex product like the Kno takes a lot of effort and cash, especially since it is an increasingly competitive market for mobile and portable computing products that includes Apple, Microsoft, Hewlett-Packard, Google, Amazon, Dell and many others.

Kno recently raised another $46 million in funding to add to a $10 million round, and sources said that the Santa Clara, Calif., company was considering going back out to raise even more.

Its current backers include prominent venture players like Andreessen Horowitz and First Round Capital, along with investors Mike Maples and Ron Conway.

A Kno spokeswoman declined comment.

But sources said the shift to deliver textbook and other student-related delivery system would be a better path for all that investment money, since Kno has established a wide range of partnerships with colleges and universities.

In addition, Kno Co-founder Osman Rashid has a lot of experience in digital education market. He was also the co-founder of Chegg, the textbook rental business that is reportedly aiming for an IPO soon.

You can see Rashid here, along with the Kno tablet prototype in the full demo video that the company did last year at the eighth D: All Things Digital conference:

(Want to see it bigger? Click here.)

]]> http://allthingsd.com/20110221/exclusive-kno-student-tablet-start-up-in-talks-to-sell-off-tablet-part-of-business/feed/ 18 http://allthingsd.com/20110214/apple-reports-progress-on-supplier-responsibility-but-major-violations-doubled-last-year/ http://allthingsd.com/20110214/apple-reports-progress-on-supplier-responsibility-but-major-violations-doubled-last-year/#comments Mon, 14 Feb 2011 21:18:03 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=57781 Apple was recently accused of ignoring hazardous and unhealthy conditions at its overseas suppliers, so the company’s 2011 Supplier Responsibility Progress Report arrives at a particularly apt time.

Certainly it belies Apple’s rank of last in a list of 29 multinational technology companies in terms of responsiveness and transparency. Forty percent of the suppliers included in Apple’s report said this was the first time their facility had ever been reviewed for social responsibility compliance. Which is worth noting. Surely Apple isn’t the only consumer electronics company they’re working with. Hear that HP? Nokia?

Anyway…

Detailed in the report are the findings of 127 facilities audits, including core violations of Apple’s Supplier Code of Conduct and Apple’s responses to them, which range from mandatory facility upgrades to the termination of business with violators (The company ended its relationship with 3 suppliers on 2010 for code violations). Sadly, Apple discovered 37 core violations in 2010, versus 17 the year before.

Also addressed, the sourcing of conflict-free “conflict minerals” like tantalum and tungsten, the n-hexane incident at Wintek and, of course, the suicides at Foxconn’s Shenzhen facility. Apple appears to have made significant headway on all three fronts, establishing a tantalum and tungsten smelter audit process, forcing Wintek to end its use of n-hexane and improve its ventilation systems and working with Foxconn to develop measures to prevent further suicides.

All good to hear, though obviously when an audit of 127 facilities turns up underage labor violations at nine facilities and hazardous chemicals at 80 more, there’s quite a bit more work to be done.

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