HP, Dell keep wary eye on big jump in China labor costs

“Hewlett-Packard and Dell Inc are keeping a close eye on a big jump in wages for workers that assemble Apple Inc’s iPhone in China, and could be forced to nudge up prices for their own products if labor costs keep rising,” Noel Randewich and Poornima Gupta report for Reuters.

“Major contract manufacturer Foxconn Technology Group — which counts Apple, HP, Dell, Nokia and Motorola Mobility among its major clients — last week raised wages for its workers in China by 16-25 percent, the third hike since 2010,” Randewich and Gupta report. “The wage increases reflect a rising trend across the Chinese electronics manufacturing industry and could pressure already wafer-thin margins at the likes of HP and Dell.”

“‘HP and Dell’s PCs could cost a bit more. Those companies have been trying to pass on extra costs. It may or may not work. Their products aren’t as differentiated as Apple’s,’ said Shaw Wu, an analyst at Sterne Agee in San Francisco,” Randewich and Gupta report. “Foxconn’s February wage hike was announced days after Apple said a U.S. non-profit labor group had begun an ‘unprecedented’ inspection of working conditions at its main contract manufacturers, including Foxconn. Foxconn’s wage increase comes as Chinese electronics manufacturers face higher costs to attract workers.”

Read more in the full article here.

MacDailyNews Take: Overheard at FUD, Inc.: Oh shit, now this is boomeranging back on us! With our yellow journalist buddies, we tried to put the brakes on Apple, but they’re the only ones with margins. Now WTF are we going to do?!

[Thanks to MacDailyNews Reader “Sarah” for the heads up.]

Related articles:
ABC News ‘Nightline’ airs report on Foxconn factories (with video) – February 22, 2012
Apple supplier Foxconn again lifts pay for China workers; 16-25 percent increase – February 17, 2012
FLA President: Foxconn factories ‘first-class; way, way above average’ – February 15, 2012
Apple CEO Tim Cook calls New York Times supplier report ‘patently false and offensive’ – January 27, 2012

21 Comments

    1. For now, sure, but the handwriting is on the wall. There’s nowhere else cheaper to export to anymore. Once the guys at the bottom start raising their prices, that’s going to roll all the way back through all the middle men.

      The SMART companies are looking at the current situation and, knowing that it COULD be a day within the next 10 years where manufacturing in the US (no customs, lower shipping) could be cheaper. They’re beginning to buy up the land where old decrepit factories (ALREADY zoned commercial, no fighting there) stand today and are tooling up for the long haul.

      It’s a gamble, yes, but if they’re right, they will be years ahead of where any competitor has a hope of even coming close to… skate to where the puck is GOING to be.

      1. Add a bunch of advanced robots to the equation, and we may soon find that selected types of high-tech manufacturing are actually less expensive in the U.S. than elsewhere.

        A lot of people vociferously dispute the potential for manufacturing to return to the U.S. But history runs in cycles. On top of the fact that labor cost is only one of the factors in the total cost of production, it appears that the cheap labor is disappearing. When you introduce some game-changing technologies, such as advanced robotics, it is highly conceivable that some manufacturing will return to the U.S. over the next couple of decades.

      2. There are places cheaper than China. Viet Nam for one. Maybe Thailand, Malaysia, Indonesia. When they get to Bangladesh, you’ll know they’ve run out of cheaper places to go.

  1. I doubt that these wage increases will effect the costs to the purchasing companies like HP, Apple, Dell etc. because it is likely some fat cat government official who is dropping some of their take from Foxconn. Corruption is slowly falling and the world is becoming a better place.

      1. The “cleanest” government? If you mean environmentally you have not read the NGO’s that report the high toxicity in rivers, lakes, and soil where residents living along these contaminated areas complaining health problems.
        If you mean government operation, you have not had to deal with the under-the-table pay offs and grafts many businesses have to pay to get things going faster than others. The main Chinese selling point for their economic rise was their low cost of production and almost non existent regulations which have been a double edge sore withs it’s costs and benefits.

  2. HP under new management run by a clueless fat old lady is repeating the mistaks committed by the last female CEO they had. Meg Whitman ran eBay to the ground, made a totally clueless run for politics and lost and is now being touted as some saviour. Fat chance of a turnaround in HP happening, not with that fat old hag in charge.

    1. With you, it’s always about specs. You must be the most superficial guy on the planet. You really need to get back together with the Right Nut so you can achieve some balance.

  3. Now Apple is able to not only control the supply chain by using its massive cash hoard to buy parts months in advance, but it’s able to force other manufacturers to raise their product prices by paying more for labor. The net result? Apple’s products look increasingly attractive while the competition slashes profit and sales outlook.

  4. Foxconn are installing robots on a massive scale, with a million planned within less than three years.

    Obviously this will mean that they will be less dependent on having large numbers of cheap workers, but the automated assembly methods won’t suit all manufacturers. The one getting maximum benefit will be those making huge volumes of identical items, without too many customised options … such as Apple.

  5. What they see flashing in front of those eyes are their hair-thin margins dipping under the “zero” mark and heading into losses because of their attempt to use yellow journalism to hypocritically attack Apple.

    Serves. Them. Right.

    Suck on that for a while.

  6. You know the easy conclusion is that Apple was the hapless victim of a smear and that it has boomeranged.
    However the conspiracy theorist in me thinks that this might be unfolding exactly as Harri Seldon… errr… Steve Jobs planned. Think about it, it will remove a small portion of apple’s margin yes but it will give the assembly workers a better life and an incentive to do a good job and remain at foxconn…. AND will remove the last shred of profit from those trash bege box builders like Dell and HP.
    Apple is kicking the supports out from under the MS machine one by one…

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