Bloomberg posts an interesting chart that illustrates just how important an Apple manufacturing contract means to Foxconn, builder of the iPhone and iPad. Since the debut of the iPhone in 2007, Apple’s profit margins have doubled, whereas Foxconn margins have decreased, to its current razor thin 1.5%:
“Hon Hai is willing to sacrifice margins so it can get volume and scale,” said Vincent Chen, an analyst at Yuanta Financial Holding Co. in Taipei who has a “buy” rating on the stock. “Apple is also getting so large that it needs a supplier that can provide such scale.”
Foxconn was previously reported to replace some of its workers with over 1 million robots over the next few years to combat rising labour costs and improve efficiency and yield rates, crucial to securing Apple’s lucrative business. Apple has rumoured to have seeked out other manufacturers, such as Pegatron Technology to produce the iPhone 4S.