After reports that Foxconn wanted to get out of the Apple business, Apple has gone ahead and started getting out of the Foxconn business, dumping its partner in human rights crime for the production of the rumored cheap iPhone, reports The Wall Street Journal's Eva Dou. Due to increased financial demands from Foxconn, Apple has shifted its business to Pegatron, which already produces the iPad Mini, for the upcoming iPhone — and that's just the latest erosion in a relationship that saw Foxconn, in its iPhone-building monopoly, become as much as symbol of international manufacturing efficiency as internationally shameful working conditions.
It may appear that Apple is ditching the controversial Chinese manufacturer for the proven Taiwanese builders at Pegatron because of the high-profile labor scandal Apple has endured for a year and a half, but the Journal's sources cite other reasons: "Risk diversification after Foxconn's manufacturing glitches last year with the iPhone 5 that resulted in scratches on the metal casings, and Apple's decision to expand its product lines amid growing competition from Samsung Electronics Co. and others," Dou writes. Also, Pegatron, which is building up its presence in China, was willing to accept thinner profit margins than Foxconn, which has started to distance itself from Apple. As the once dominant gadget maker's stock price has started to slump, Foxconn has started to look toward other industries, investing in media software and reviewing plans to build its own line of devices, as the Journal's Lorraine Luk reported earlier this week.
In any case, Pegatron's human rights track record isn't flawless. On the eve of the iPad Mini release, a human rights group released a report criticizing working conditions at a Pegatron-owned establishment, citing familiar issues. For example, overtime in the factory can reach up to 200 hours a month, five times the legal limit, and the supplier often fails to pay for some of the overtime work logged — and workers claim Pegatron management never actually offered a 10-minute break every two hours, as promised. Of course, Apple is already the face of that burgeoning scandal, with this group, Students & Scholars Against Corporate Misbehavior, blaming the American company for failing to monitor its supply chain in a Shanghai-run factory under its major new Taiwan-based manufacturing partner.
Though some Apple products are surely migrating away from Foxconn, a complete break-up between the two companies will take some time. There are just too many people and literally too many moving parts. Even though Pegatron took over iPad Mini production last year, Foxconn ended up taking on some of the production due to a learning curve slow-down, sources tell Dou. Plus, all those other Apple goodies are still being made by Foxconn's now decently paid — and not too overworked — worker drones.