Will Apple’s Greed Be Its Downfall?

Foxconn Technology Group had to halt production of Apple’s (NASDAQ:AAPL) iPhones for the second time in two weeks as factory-line workers protested against increased pressure.

The company, which employs over 1 million workers in China, has in recent years suffered suicides, riots, and strikes, prompting global outcry for it to improve working conditions. Chairman Terry Gou has raised salaries and allowed inspections by outside observers, but employees, who work as many as 12 hours a day, say they are now finding it difficult to meet Apple’s demands for quality and quantity while also dealing with abuse from guards.

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On Friday, one of the company’s factories in Zhengzhou, China, was out of commission for two full shifts, according to Bloomberg. Workers reportedly became frustrated trying to prevent scratching on the casings of the iPhone 5, a dispute occurred between the production and quality teams at the factory, and subsequently, some 3,000 to 4,000 workers walked off the job.

Though employees have since returned to work, according to advocacy group China Labor Watch, the walkout demonstrates further need for the company to improve working conditions and employee relations. In a press release last week, China Labor Watch said employees had been made to work through a holiday week and were subject to “overly strict” product-quality demands without adequate training. These demands, it said, were placed on the manufacturer by Apple after customers complained the company’s latest handset came with scratches.

Apple would not comment on the stoppages at the Zhengzhou plant, according to Bloomberg, and while Foxconn confirmed incidents on October 1 and 2, it also declined to comment on the events of October 5. About the earlier events, Foxconn said in an emailed statement, “these were isolated incidents and were immediately addressed and measures taken, including providing additional staff for the lines in question.”

But they weren’t the first, nor were they likely to be the last, incidents to plague the iPhone manufacturer. Just last month, a brawl involving some 2,000 workers at a Foxconn plant in northern China’s Taiyuan halted production, brought in security teams wearing riot helmets and wielding plastic shields, and left more than 40 people hospitalized.

Apple’s iPhone 5 has been trumpeted by analysts, investors, and the media as the company’s biggest success and a symbol of its lasting virility. The world’s most valuable company sold 5 million of the new iPhone models in their first three days on sale last month. And as demand continued to outpace supply even after the iPhone’s debut last month, Apple felt pressure to increase production, in turn placing that pressure to deliver on its workers.

After at least 10 employee suicides in 2010, the problems at Foxconn were no longer ignorable, and though Apple had under Steve Jobs left Chinese manufacturers relatively alone, CEO Tim Cook, brought the company into the Washington-based Fair Labor Association, leading to inspections that exposed numerous violations, and resulted in Foxconn cutting work hours and improving safety.

But the problems that plagued the Shenzhen plant are still present in some of Foxconn’s other factories. Workers in Taiyuan say they live in crowded dormitories, some without air conditioning, that there are not enough masks on the assembly line to protect each from fumes, and that their supervisors are very strict.

Part of the problem is that Foxconn margins place constraints on wage increases. Last year, Foxconn parent Hon Hai had an operating margin of 1.1 percent, according to data compiled by Bloomberg, while Apple’s operating margin for the fiscal year ended September 2011 was 31 percent. Continued issues at Foxconn may indicate that it is time for Apple to set aside a larger share of its profit to ensure Chinese laborers are paid adequately. In the meantime, Apple’s public image will suffer as the result of now more visible labor issues at Foxconn.

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