Jun 24, 2010
    United States
    For those less knowledgeable in investment talk: http://www.investopedia.com/terms/b/bluechip.asp
    Here's the full story for those who do not want to bother with clicking the link.
    Another blow for embattled iPad maker Foxconn
    By Katie Hunt Business reporter, BBC News, Hong Kong

    First came the suicides. Then came the fatal explosion.

    Now the Taiwanese company that toils in the shadow of high-profile clients such as Apple is facing another blow - losing its blue-chip status.

    Foxconn International will be removed from Hong Kong's benchmark Hang Seng index, which groups the city's biggest listed companies, on Tuesday.

    Shares in the money-losing company have tumbled 10% since the move was announced on 12 May and could fall further as funds tracking the index's 46 constituents adjust their portfolios.

    Foxconn's woes highlight the pressures China's low-cost manufacturers are grappling with as the country's deep and cheap labour pool begins to dry up.

    Foxconn counts itself as one of a number of "hidden dragons" - the huge but little known companies that manufacture goods, largely in China, for the world's biggest brands in electronics, clothing, toys and home appliances.
    Continue reading the main story
    “Start Quote

    The year 2010 has been an extremely difficult year for us”

    End Quote Foxconn International Annual report

    For instance, few people are familiar with Yue Yuen Industrial Holdings but most people own a pair of their shoes. The Taiwanese company makes a third of the world's shoes for brands such as Nike, Timberland and Rockport.

    Unlike its peers, Foxconn is now a familiar name to much of the world although its rise to prominence has been for all the wrong reasons.

    A dozen suicides in 2009 and 2010 ignited concern about working conditions at Foxconn's gargantuan "factory towns" where employees work, sleep and eat.

    Initially dismissive of the suicides, Foxconn has since raised pay and cut working hours for its workers - usually migrants from China's poorer provinces.

    It has also set up a 24-hour counselling centre, attached suicide nets to factory livings quarters at its Shenzhen plants and invited monks in to ease tension.

    However, a report last month by Hong Kong watchdog group, Students and Scholars Against Corporate Misbehaviour (Sacom), said that while Foxconn had fulfilled some of its promises, working conditions remained poor, particularly at the company's newer plants in the west of China.

    At its plant in Chengdu, which exclusively produces Apple products, Sacom reported workers complained about dust, skin allergies, sore eyes and poor ventilation as well as long hours and miscalculation of wages.

    These concerns about plant safety were underscored on 20 May when an explosion at the Chengdu plant killed three people.

    Rising wages in the wake of the suicides, as well as falling prices for smartphones, laptops and other gadgets, have undermined the Foxconn group's financial performance.

    Its Hong Kong-listed unit Foxconn International posted a loss of $220m (£135m) in 2010.

    "The year 2010 was an extremely difficult year for us," the company said in its annual report.
    Fire engines arrive at the Foxconn plant in Chengdu Watchdog groups are concerned about worker safety

    Like other manufacturers, it is moving production to China's inland provinces amid double-digit increases in wages in the Pearl River Delta - China's traditional manufacturing heartland.

    Honhai Precision Industries, Foxconn's Taiwan listed company, has fared only a little better, with sluggish growth in its 2010 earnings.

    According to estimates by Deutsche Bank, Honhai saw labour costs rise by more than 30% in 2010 - a rate expected to continue in 2011 before easing to about 20% in 2012.

    But analysts say the company should perform better as it completes the relocation of its operations to plants in Sichuan in western China, where wages are about 15% lower. It is also building a plant in Henan.

    Foxconn executives have also said the move inland might help prevent suicides, as workers will be closer to their home-towns.

    Some observers say Foxconn has come under greater scrutiny than other manufacturers because of its high-profile link with Apple, but its working practices are no worse than the vast majority of factories in China's manufacturing heartlands.
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    Foxconn assembles:

    * Apple iPods, iPads and iPhones
    * Dell Computer components
    * Microsoft Xbox 360
    * Amazon Kindle
    * Nokia, Motoroloa and Sony Ericsson smartphones

    "They pay workers on time and for overtime according to the regulations, and that's why workers always queue to work there," Geoffrey Crothall, a spokesman of China Labour Bulletin told Bloomberg Businessweek last year.

    And other companies have faced labour unrest. Workers at a Honda plant in Guangdong staged a strike in May 2010 to demand higher wages.

    In a survey published in 2010 by Oxfam Hong Kong, Foxconn ranked sixth for corporate social responsibility out of the 42 companies that then made up the Hang Seng index.

    Oxfam praised Foxconn for giving 1% of its profits to charitable causes and highlighted its thorough monitoring of its supply chain.

    Low cost?

    The Hang Seng index now contains just one export-focused company - Li & Fung, which helps big names like Wal-Mart source goods cheaply.

    Shoemaker Yue Yuen lost its blue-chip status in 2009.

    Foxconn will be replaced by insurer AIA and nappy maker Hengan. Both companies target China as a market for their products rather than as a place to make goods cheaply for export.

    Foxconn itself is considering such a switch in focus, with plans under way to open 10 large electronic stores in the Shanghai area by the end of 2011, in partnership with German retailer Metro.

    It is a risky strategy for a contract manufacturer with no experience in China's cut-throat retail market - but higher salaries for China's workers will make buying the iPads, lap tops and gaming consoles that Foxconn produces more affordable.
    Have a happy discussion.
  2. Terminator02

    Terminator02 ヽ( 。 ヮ゚)ノ

    Apr 10, 2010
    United States
    i get what it means, but how does that actually affect the company other than negative publicity?


    Jun 24, 2010
    United States
    In short, its loss thereof undermines the company's ability to portray itself as a reliable investment for future investors. True, it could still be interpreted as "negative publicity," even then. But since it has affected company shares, its very ability to garner profit comes into question. The combination of negative publicity regarding their worker abuse, the growing inability to sustain a pool of cheap labor in China, among other factors, have assisted in this development. The loss of the blue-chip further means their exclusion from the Hang Seng Index (a monitor on China's biggest companies) can be interpreted as a "no-confidence" vote by the market heavy-hitters. In my opinion, the article touches upon this too briefly. Perhaps you could think of it as a market stigma that affects profitability?

    If that didn't answer your question, please let me know.
  4. DSGamer64

    DSGamer64 Canadian, Eh?

    Nov 9, 2007
    Yeah but the people who actually care about Foxconn are tech heads, I don't think they care about the investor side of the company because they still make great products and do so much for so many electronics companies.
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