Foxconn has apparently botched a batch of iPhones, which Apple returned to the contract manufacturer because they were not fit for sale.
Details of just what went wrong are sketchy, as the source for this tale is an anonymous Foxconn staffer chatting to China Business. That report, after being forced through a couple of translation engines, suggests Apple sent back at least five million iPhones, and maybe as many as eight million, “due to appearance of substandard or dysfunctional problems.”
With a cost to manufacture of $US200 apiece, Foxconn is apparently preparing to take a hit of up to $1.6bn to cover the cost of making replacement handsets. China Business suggests the cost of making new iPhones represents further bad news, not a reason for Foxconn's recently-revealed financial woes.
China Business is silent on which model of iPhone failed Apple's quality tests. If it's the current iPhone 5, or the still-on-sale 4S, the impact of eight million phones failing to appear would punch a two-or-three-week hole in Apple's supply chain, an assertion we make on the basis that the company says it sold 47.8m handsets in its last quarter. That quarter included Christmas, so we can safely assume the January-March quarter sees a little less handset-selling action.
If the botched phone is a newer-and-as-yet-unreleased handset, it could be grounds for a delay in its announcement or release
Foxconn Could Take Up To $1.6B Hit As Apple Rejects 5-8 Million Defective iPhones [Report]
John Brownlee (7:31 am PDT, Apr 22nd)
A Chinese paper is reporting that Apple and Foxconn may have had a staggering setback in the production of the iPhone, with up to eight million iPhones returned to Foxconn because they didn’t meet Apple’s standards.
According to China Business, between five and eight million iPhones — probably the iPhone 5, and not the upcoming iPhone 5S — were returned to Foxconn in mid-March due to production problems, like “a substandard appearance or malfunction.”
If true, this could be a huge hit to Foxconn’s bottom line: up to $1.6 billion, if every aspect of the returned handsets were malfunctional. That’s unlikely: it’s more likely these existing handsets can be refurbished for parts.
Either way, though, this highlights a growing problem: Apple’s products just become increasingly difficult to make. A Foxconn official complained about it back in October, saying “The iPhone 5 is the most difficult device that Foxconn has ever assembled.” The difficulty in delivering iPhone 5’s that matched Apple’s quality standards were what, in part, lead to extreme shortages in the late part of last year, as Foxconn CEO Terry Gou lamented “It’s not easy to make the iPhones. We are falling short of meeting the huge demand.”
Given that the iPhone 5S is likely to be even more difficult to produce than the iPhone 5, this looks like trouble for Foxconn. If even the iPhone 5 is so hard to produce that Foxconn — the most sophisticated mass-producer of gadgets in the world — is having shipments of up to eight million devices rejected seven months into the iPhone 5’s lifecycle, how much harder will the next-generation models be?
In reflection I must call this report nonsense. Obviously there can be defective product, but not to this scale. There have to be quality verification in place otherwise Apple products would be known for inconsistent quality and usability !