By Alexandra Burlacu | Apr 22, 2013 11:00 AM EDT
Apple reportedly returned a whopping 8 million iPhones to Foxconn, due to problems over the handsets' appearance and functions, in a move that may cost millions.
Foxconn may end up spending up to 1.6 billion yuan ($256.8 million) to replace the faulty iPhones Apple returned.
According to a China Business Journal report on Saturday, April 20, Apple returned 5 million iPhones to Foxconn on March 15 due to issues with the phones' functions and appearance. The report further cites a source from Foxconn, who spoke under condition of anonymity, claiming that the total number of returned iPhones could be as high as 8 million.
If Foxconn finds itself in a position to "re-manufacture" the faulty handsets by using some of the original parts and replacing faulty ones, the company may have to pay a labor cost of 200 yuan ($32) apiece. For 8 million faulty iPhones, this would add up to roughly 1.6 billion yuan ($256.8 million). Such an amount would equal two thirds of the profit Foxconn's integrated Digital Product Business Group (iDPBG) generated in 2012. Foxconn's iDPBG is the company's most profitable group, and it's also the one making iPhones for Apple.
"It's not the first time that such quality control problems occur," the source told China Business Journal. "The fast growth and expansion of the production brings huge challenges to the newly promoted and management staff."
The iDPBG changed several directors recently, from Michael Chung to Chung Chengyu to the current Chen Huilong, all in a bid to address quality control issues. Critics, however, claim Chen has little experience in dealing with Apple, Foxconn's greatest customer, a Business Insider report details.
Foxconn recently suspended production at three iDPBG factories in the Chinese cities of Shenzhen, Zhengzhou and Taiyuan, from April 7 to 15. The Cupertino giant, meanwhile sent in investigative staff in an effort to increase the quality production rate. Each production line currently makes 1,000 to 2,000 iPhone units each day, but the final production rate still remains at 95 percent.
In a separate report on April 21, Focus Taiwan said a Hon Hai (Foxconn) spokesperson, Simon Hsing, denied the figures listed in the China Business Journal report. The spokesman added that Foxconn will look into the issues of management and product yield rate China Business Journal mentioned in its report.
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