What’s Up With This Batch of Faulty iPhones?

It can be trouble when things are lost in translation, but, as Foxconn (FXCNY.PK) is finding out, it can also be trouble when close to 8 million iPhones are manufactured with defects.

There’s a problem understanding exactly what happened between Foxconn, Apple (NASDAQ:AAPL), and a staggering number of iPhones. The first thing that’s clear is that there was something wrong with a shipment of iPhones and Foxconn had to take them back — but it’s unclear just how many devices were returned and what exactly went wrong.

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One source translated the amount as 5-8 million devices that had “substandard or dysfunction problems.” A second source was further off, saying Apple returned 800 million iPhones for being faulty. The first source suggested that the devices might not be salvageable, and based on the $200-per device manufacturing cost that could result in a $1.6 billion hit for Foxconn. Surprisingly, the second source suggested that the hit would only be around $256.8 million.

Clearly, there is some trouble getting the facts straight between the Chinese original and the English translation. The original conversation was between an anonymous Foxconn employee and China Business. There may be some clarity when looking at the two translations together…

Assuming that there are just 8 million devices, they are not 100 percent worthless, and that they can be fixed up to meet Apple’s specifications, it’s possible that the total hit could amount to 1.6 billion Yuan, rather than U.S. dollars as suggested by the first source. That value is roughly the equivalent of the $256.8 million suggested by the second source.

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While that interpretation of the data sure looks better for Foxconn, it doesn’t do a lot to help Apple, which would still have around 8 million devices not ready for sale. Having to send that many iPhones back could cause a shortage in the supply available for sale, which would simply add to the slew of negativity around Apple’s stock, as investors and analysts are now expecting new product delays and even weaker performance of some devices.

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