A Wobbly Week for Foxconn

by Brandy Betz | February 14, 2012 9:14 am

Foxconn (PINK:FXCNY[1]) has had a hectic several days. Early last week, Foxconn encountered a massive hacking and information dump. And on Monday it canceled a sale of convertible bonds. Meanwhile, a team of independent labor rights workers began a major audit of the company’s labor practices at its factories in China.

Of course, controversy isn’t new for the Taiwan-based manufacturer of metal cases for electronic devices produced by industry notables such as Apple (NASDAQ:AAPL[2]), Dell (NASDAQ:DELL[3]), and Microsoft (NASDAQ:MSFT[4]). Foxconn has faced longstanding complaints about working conditions at its factories, particularly those it operates in China, where workers have protested the company’s labor policies and where a number of employees have committed suicide. Terry Gou, chairman of Foxconn parent and electronics manufacturer Hon Hai Precision, didn’t help matters much when, in mid-January, he noted, according to one translation, that “as human beings are also animals, to manage one million animals gives me a headache.” Apple, not surprisingly, has ended up taking heat for its manufacturing partnership with Foxconn.

Labor auditors begin their work

As part of an attempt to address the issue, Apple announced Monday that it had auditors at Foxconn assessing working conditions at a Foxconn factory complex in China. The investigation will be conducted by the Fair Labor Association (FLA), a collective of corporations and educational institutions that Apple joined last month, around the same time the company released a full supplier list that included disclosures of potential rights violations at some of its other manufacturing partners. The FLA labor rights team will be sent to the manufacturers that have raised human rights red flags.

Even though a large segment of Apple’s manufacturing so snugly associated with Foxconn, it might not seem fair that other Foxconn partners, including Amazon (NASDAQ:AMZN[5]), Microsoft, and Dell, haven’t endured labor-related PR problems of the same intensity. On the other hand, Foxconn does supply 95% of iPhone and iPad metal cases. And Foxconn has ridden the popularity of Apple products to finance manufacturing expansions that include Ultrabook cases that it produces for other companies.

A convertible-bond issue called off

Foxconn’s bite of the Apple wasn’t good enough to keep it flush with cash. According to Bloomberg, plans were cancelled Monday to sell convertible bonds of up to $271 million, due to the continuing European debt crisis, according to the company. Foxconn has $74 million in bonds due this year and a reported $828 million in cash and equivalents as of last fall.

A bold hack

More unnerving than the bond cancellation was an incident last week in which hacker group Swagg Security accessed Foxconn’s servers and leaked login information belonging to employees and customers of the company. Swagg encouraged people to make fake parts orders under the name of one of Foxconn’s global customers. The 9to5 Mac blog checked the passwords as soon as the information was dumped and found that they worked. Foxconn pulled the affected servers but it’s still unclear what the hackers were able to access beyond the logins and what degree of harm was done.

In the end, though, the tribulations of week didn’t hurt Foxconn Technology stock, which closed Monday on the Taiwan stock exchange up 2.7% to $4.55 (134.50 Taiwan New Dollars). Apple also had a banner day, striking over $502 by the market close for a new 52-week high. The market performance of both companies suggests that it will take more than an advocacy-group outcry over labor conditions, a cancellation of a convertible-bond sale, and an audacious security attack to rattle these monoliths.

Endnotes:
  1. FXCNY: http://studio-5.financialcontent.com/investplace/quote?Symbol=FXCNY
  2. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  3. DELL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DELL
  4. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  5. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN

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