'Made in China' costs only US$11.2
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One month after the launch of Apple's iPad on April 3, the company claimed to have sold one million of the "magical" tablets, at a pace more than double that of the first iPhone. Many Apple fans in China have already ordered iPads through various channels, even though the product is not officially available in China yet.
Despite the iPad's wave of popularity, some producers of the product find themselves swimming in dangerous waters. Foxconn, one of the largest original equipment manufacturers (OEM) for Apple, is being rocked by the suicides of several of its employees. While some analysts say these tragedies are due to the emotional problems of individual staff members, others are pointing to the company's defective management system as the cause.
Liu Buchen, an experienced appliances market researcher, says Foxconn is a reflection of the tough situation many OEM companies face. Unlike Apple, which generates money from being both a brand owner and technology holder, OEM companies face very limited future development and are at the bottom of the chain.
"The ten suicide attempts at Foxconn this year represent the weaknesses of those companies' operating pattern. Low profitability from individual products leads to a high daily workload and a low income for the employee, which eventually causes anxiety and emotional problems," Liu told the National Business Daily.
In front of a giant like Apple and with large order numbers, OEM companies like Foxconn have no advantage at all. Coupled with fierce competition among each other, they are left with limited space for survival.
US market research agency iSuppli found that Apple pays an assembly fee of US$11.2 per unit to Foxconn, a trivial amount when the selling price of an iPad is US$499. The cost of all parts of an iPad comes out to US$219.35, less than half its retail price.
One A4 processing chip that goes in the iPad and was developed by Apple costs US$26.8, and a 16GB flash memory prices at US$29.5. The most pricy component of the iPad is its 9.7-inch touch screen, which is manufactured by LG at a cost of US$95 each.
iSuppli and BroadPointAMTech have calculated that the overall profit margin of the iPhone and iPad are as high as 50 percent. In contrast, the overall profit margin of cell phones from Samsung and Nokia are 10 percent and 8.9 percent, respectively.
"For complex electronic devices, an OEM company can barely earn money with Apple's US$11.2 assembly fee," said an insider at one of the world's largest notebook computer research and development manufacturers. "For instance, the final cost of a computer monitor manufactured by an OEM company may merely account for about 50 percent of the retail price. You can imagine how much money front-line workers earn…much less, of course."
