Foxconn plight of low margin products to lower mainland transfer staff costs

on: Sun Yan Biao

the face of rival BYD Electronic (00285.HK) is gaining and declining product margins dual pressures of the global handset OEM giant Foxconn International ( 02038.HK) In addition to the factory and shift production to lower cost areas, it seems there is no better short-term coup.

corresponding to that, although the number of Foxconn's employees increased in 2008 compared to 9.7%, but total expenditure was staff costs decreased 28% year on year, the per capita cost is reduced by 34% year on year .

16 days, Foxconn international release in 2009 earnings, revenue 7.241 billion U.S. dollars, down 22% year on year, net profit of 39.62 million U.S. dollars, up sharply 68%.

Foxconn International Wei-Liang Chen, chairman and chief executive, said new investment in the mainland's industrial park construction, the majority has been completed at the end of 2008, while last year has been basically completed the relocation and global rationalization of production layout, thus no longer need to spend a year as in previous years, large capital expenditure.

per capita cost reduction over 3 percent

filing shows at the end of 2009, the number of employees reached 118,700, compared to 108,200 in 2008, an increase of 9.7%, but Total staff costs but never the 672 million U.S. dollars in 2008 decreased to 485 million U.S. dollars in 2009, down 28%. Cost per capita of 6,210 U.S. dollars from 2008 down to 4086 U.S. dollars last year, down 34%, with only 3753 U.S. dollars in 2007 per capita costs, increasing 9%.

"Hebei Langfang and Beijing are now mobile phone factory production proportion of gross domestic mobile phone production over Qi Cheng." Foxconn Technology Group, an internal staff that the new factory in China last year, Foxconn has been put into use the basic .

In fact, from 2008 onwards, the minimum wage in Shenzhen, up from 750 yuan to 900 yuan, gave Foxconn International enormous pressure on operating costs, staff costs rose from 465 million U.S. dollars in 2007 to 2008, 672 million U.S. dollars, up 44.5% rise. Now mobile phone production areas transferred to the Hebei Langfang indeed eased Foxconn International continued upward pressure on operating costs. Because the Langfang Development Zone, the minimum wage standard for 750.

"In fact, employees can significantly reduce the total cost." Foxconn International, a house staff that Foxconn, the Taiwanese enterprises in mainland China from Taiwan to the mainland cadres stationed known as the " Taiwanese, "local train cadres in China as" dry land \Foxconn Technology Group in recent years launched localization movement, but "dry land" in the proportion of Foxconn International has not increased, there is less.

low margin dilemma

filing shows Foxconn International last year, overall product gross margin has dropped to 5.9% in 2007 to 9.2%, 6.9% in 2008. Compared to rival the level of BYD Electronic's overall gross profit margin has to far more optimistic.

despite the foundry industry as the face of mobile phone margins continued to decline, but gross profit margin last year, BYD Electronic remained at 14%, compared to 20% in 2008 fell by 6 percentage points. In addition, the income of BYD Electronic gap size and Foxconn International, also 6.4 times from 2008 down to 3.4 times last year.

"compared with the BYD Electronics, Nokia mobile phones have become the order of much Foxconn International." Who has worked in Foxconn source pointed out that with the rise of China's mobile phone in overseas markets, continue to squeeze margins Nokia phone space, natural also affected Foxconn International profit margins. Foxconn International 2008 filing shows Nokia's orders accounted for 43% of total sales.

addition, BYD Electronic also received more orders for domestic mobile phone, let gross margin is much higher than Foxconn.

the source pointed out that the mobile phone giant Nokia and other international face of the global market, which brought to the Foxconn International management costs, operating costs and logistics costs are far higher than natural BYD Electronic .

Wei-Liang Chen said in the earnings, the company's business development of new customers in Korea, in particular, sold the land and the holding company of Yantai. According to insiders, Foxconn International customers are Nokia, Motorola and Sony Ericsson, Samsung and LG International orders to Foxconn few. Clearly, Foxconn International this year, Samsung and LG would like to improve the ratio of mobile phone orders, after all, Samsung and LG mobile phones have entered the global top three mobile phone.