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Apple Declares a Long-Term Commitment Toward a Closed-Loop Materials Supply Chain

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In its 2017 Environmental Responsibility Report released this week, global consumer electronics provider Apple has declared a goal towards implementing a closed-loop supply chain. This report includes a pledge to end the company’s reliance on mined materials from the earth, and to one day, make its products, including the iPhone, totally from renewable or recycled materials.  Apple Logo Apple Declares a Long Term Commitment Toward a Closed Loop Materials Supply Chain

The section titled Finite Resources includes the following statement:

Traditional supply chains are linear. Materials are mined, manufactured as products, and often end up in landfills after use. Then the process starts over and more materials are extracted from the earth for new products. We believe our goal should be a closed-loop supply chain, where products are built using only renewable resources or recycled material.

Apple is also realistic in acknowledging that a closed supply chain is indeed an ambitious goal for a high-tech and consumer electronics manufacturer. The company’s Vice President of Environmental Affairs, Lisa Jackson, told business network CNBC that while Apple does not currently know how the full objective will be achieved, it will require many years of collaboration across multiple internal teams, component suppliers, and specialty recyclers- but work efforts are already under way. She further indicated that the company is embarking on something it rarely does, establishing a goal before all the elements are completely figured out.

Current efforts include the encouraging customers to return end-of-life products through the Apple Renew recycling program. This program is piloting innovative new recycling techniques that include a line of disassembly robots that helps to reclaim materials from used smartphones and other electronics products. The company has further prioritized which materials to tackle first by creating Material Risk Profiles for 44 elements within products. These profiles identify global environmental, social, and supply risk factors spanning the life of each material.

Describing the need for high quality aluminum material free from defects found in mass level recycling programs Apple has begun a pilot proof-of-concept program using reclaimed aluminum from recycled phones to build new devices. The aluminum enclosures recovered from iPhone are melted and reused to create Mac mini computer enclosures.

What forward thinking companies are continuing to demonstrate is that supply chain sustainability efforts are good for business and they are equally good for the supply chain.  Increasingly customers based their buying decisions on a company’s commitment and demonstrated efforts in sustainability. In our current year predictions for industry supply chains, we have re-iterated that there is literally too-much momentum and positive business benefits to motivate senior executives to derail such efforts. Apple has been one of other early adopters of a supply chain sustainability commitment and this latest declaration of a closed-loop supply chain is indeed, an added manifestation of a sustainable business model, one that assures a continuous supply of product value-chain components at a more controlled cost with assured availability. We also like the emphasis on leveraging new technologies to address such needs.

Supply Chain Matters commends Apple for its declaration and commitment toward manifesting a closed-loop supply chain.

Well done and keep up this good work.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Report that Foxconn Offered $27 Billion for Toshiba’s Chip Business

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Supply Chain Matters provides some follow-up news to our earlier posting regarding the world’s largest global contract manufacturing services provider Foxconn (Hon Hai Precision Industry Co.) and its recent revenue decline.

Citing informed sources, The Wall Street Journal reported this afternoon (Paid subscription required) that Foxconn has offered upwards of $27 billion to acquire Toshiba Corp.’s computer chip business, in yet another bold move to acquire a Japanese high-tech company.

The Toshiba business unit produces flash-memory chips, including NAND flash memory, utilized in smartphones and computer servers. The business is considered strategic to Japan’s high-tech industry. Of-late, Toshiba has been battered by significant cost overruns from another operating division, its nuclear reactor construction business. Westinghouse Electric Co., which is majority owned by Toshiba, filed for U.S. bankruptcy last month and Toshiba expects to book considerable financial losses, which has prompted the proposed sale of its computer chip business. Thus, Toshiba’s prime motivation is reportedly to garner a lucrative price for its chip business.

Like its successful effort to acquire Sharp Corp., Foxconn has reportedly placed a very attracted offer on the table, well beyond what other entities are currently offering.

The WSJ reports that the government of Prime Minister Shinzo Abe is in a tough spot since government officials are hoping to see a Japanese company or a Japanese-U.S. joint venture company assume ownership of the computer chip business. A government official is indicated to the WSJ that Japan would be opposed to any mainland Chinese bidder due to fears that the technology would be leveraged for competitive advantage along with the threat of spyware being placed on the chips themselves. Thus, the process may take on political and national security dimensions, before any final deal is done.

The WSJ cautions that the process has not reached any final stage and bids can change as contenders acquire added knowledge of Toshiba’s chip business.

Both Foxconn or Toshiba declined WSJ’s request for comment.

While the computer chip business can greatly add to Foxconn’s strategic intent to further diversify into the high-tech component product value-chain, this is a business highly dependent on continuous and expensive research and development. The sum of $27 billion is quite hefty burden, especially for a contract manufacturing services provider that has operated in very thin margins. The WSJ opines that these factors may favor bidders already part of the chip manufacturing business.

Needless to state, this process bears watching for high-tech and consumer electronics supply chain and procurement teams. Similar to what occurred with Sharp, it could drag on for months, something that is likely not within Toshiba’s timetable for making a deal.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


A Not So Attractive Milestone for Foxconn- A First Annual Revenue Decline

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Last week, Asian financial business media featured the headline that global contract manufacturer Foxconn Technology, also referred to as Hon Hai Technology Group,  experienced a significant milestone, its first-ever revenue decline since going public in 1991.

Foxconn is of course well-known as Apple’s prime assembler of iPhonesFoxconn 300x201 A Not So Attractive Milestone for Foxconn  A First Annual Revenue Decline

While total full-year revenues declined 2.8 percent, net profits were up 1.2 percent from 2015, according to a filing with the Taiwan Stock Exchange. That is a testament to rigid cost controls and the application of increased automation in its existing manufacturing operations. A report from the Nikkei News Agency indicates that the contract manufacturer’s December revenues grew 9.76 percent year-on-year although no detailed information related to Q4 was disclosed by Foxconn last week.

High-tech and consumer electronics Industry observers attribute Foxconn’s revenue decline directly to falling iPhone sales along with Apple’s decision to shift iPhone assembly to other contract manufacturers. We recently posted that Apple will begin production of iPhones in India utilizing Wistron as the CMS provider. Pegatron also serves as a CMS for iPhone 7 models.

Nikkei cites Vincent Chen, head of regional research at Yuanta Investment Consulting as indicating that for 2016, iPhone shipments declined to 207 million, from 236 million in the prior year. Chen now predicts that Foxconn’s revenues will increase 5 to 10 percent due the healthier demand generated by this year’s tenth-anniversary iPhone 8 model.

Readers will also recall from our various other Foxconn focused blogs that the company has been actively pursuing a strategic shift away from its primary dependence on Apple and to diversify into other upstream high-tech component areas as well as in branded consumer electronics products of its own. In 2016, the manufacturer completed its acquisition of Sharp Corp., and is now reportedly actively exploring an acquisition of Toshiba Corp’s semiconductor business. Earlier this year there was a report that Foxconn was looking to construct a $7 billion LCD production facility in the United States. Like all things related to Foxconn, it is often an on-again or off-again process.

Not all Apple suppliers have the where with all to pivot away from a high dependence on Apple, and of-late, the consumer electronics giant continues to pursue supply chain segmentation strategies that source lower-cost contract manufacturers and suppliers. However, a larger concern obviously centers on Trump Administration calls U.S. corporate tax reform that features a form of import taxes.  As we all know, Apple’s supply chain is for the most part, highly Asia-centric. If the U.S. Congress were to adopt a form of a value-added tax related to imports, that would be a different impact as-well.

While Foxconn will bounce back from this revenue shortfall model, it will be as a more diversified participant in the high-tech and consumer electronics supply chain value-chain. Contract manufacturing product margins alone are far too challenging not to do otherwise.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


Additional Report Indicating Apple to Begin Manufacturing iPhones in India

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In late January, Supply Chain Matters called attention to a published report by The Wall Street Journal, citing local government sources, indicating that global smartphone and consumer electronics provider Apple was nearing a deal to manufacture its products locally in India.  The Wall Street Journal is now reporting (Paid subscription required) that production could begin in a matter of 4-6 weeks.  Apple Logo Additional Report Indicating Apple to Begin Manufacturing iPhones in India

This latest update indicates that Taiwanese contract manufacturing services provider Wistron will likely manage local manufacturing of iPhone6 and 6S smartphones from an existing production facility located in Bangalore. The facility will add production on the entry level SE model in three months, according to this report. An Apple spokesperson acknowledged to the WSJ that the company was working hard to deploy operations in the country but declined to elaborate further.

The latest report brings forth added information implying that a broader manufacturing and supply chain strategy may be at-play for Apple, one that is different than the January report.  Noted is that the company is discussing with Indian government officials on its additional desires to add various smartphone component manufacturers into India as well to support final assembly as well as export of finished products to other countries. The previous indication was that component parts would be imported from China and the United States. The January report indicated that specific Apple requests included concessions related to tax and tariff exemptions, including a 15-year tax holiday on imports of components and equipment. A new reference is made to Apple CEO Tim Cook’s recent call with analysts where a statement was made that the company intends to invest significantly in India.

From our lens, this added information implies potential moves toward a new segmented supply chain strategy that can possibly reduce the overall production costs for certain iPhone models, making them more price affordable for emerging Asian based consumers. It further implies a shift from a sole dependence on a China-centric supply chain and manufacturing value-added strategy.

With a reported 2 percent of existing market-share within India, Apple has a long way to go to penetrate the second largest consumer smartphone market beyond China.

We do raise a cautionary note however, since most the current information is emanating from state or local government officials as opposed to the government itself. That implies that a lot of back and forth discussions remain in terms of overall cost and regulatory concessions to be granted by the government, not to mention any additional political fallout to existing manufacturers in the country.

As we opined in January, if local, and now, perhaps export based manufacturing of Apple products were to be formally announced, we suspected a reaction emanating from the Twitter account of U.S. President Donald Trump. It’s no secret that Trump has Apple in his crosshairs because of the presence of a large number of Apple’s manufacturing employees throughout China. Not to mention that Apple is the most highly watched supply chain among Wall Street investors and consumers themselves.

Thus, perhaps there will not be any formal government of Apple announcements, not until all the components of the evolving manufacturing and supply chain strategy fall into place.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


An Update Concerning Foxconn

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We wanted to provide our readers an update from a recent Supply Chain Matters posting citing a report indicating that a Sharp Foxconn U.S. plant announcement was imminentFoxconn 300x201 An Update Concerning Foxconn

This week, The Wall Street Journal reported that while Foxconn was still interested in building a large-scale flat-panel U.S. manufacturing facility, its iconic Chairmen is challenging U.S. business and sense-of-urgency norms.

This latest WSJ update (Paid subscription required or metered view) indicates that Foxconn Chairman Terry Gau is drawing contrasts among China’s Guangdong Province officials who eagerly supported efforts to move ahead with the siting and building of an $8.8 billion flat-panel factory while U.S. talks have stretched on for years. Cited are officials noting that it took literally just 50 days for Guangdong officials to negotiate a deal with Foxconn.

Supply Chain Matters would quickly add, however, that business norms among these countries are quite different, for very important reasons.

In this week’s report, Mr. Gau indicated to the WSJ that he had just visited Washington D.C. but declined to elaborate further. He further indicated that to compete with China government officials, the U.S. must offer tax breaks and develop worker-training programs, along with studying how things are done in China. Gau indicated to the WSJ that he has urged U.S. state representatives to visit China: “To see how in such a short span of time, we can get so many things done here.”

We strongly suspect that Mr. Gau may be trying to cater to the current pro-business agenda of the new Trump Administration, especially in the notions of reduced regulations and in the reported thwarting of government agencies such as the U.S. Environmental Protection Agency (EPA). Perhaps Mr. Gau may not be sensitive to the current political backdrop of a U.S. state granting fairly large incentives to a China based manufacturer as contrasted to a U.S. resident manufacturer.

Beyond the political optics, there is, from our lens, a far broader consideration.

In the acquisition of Sharp, Foxconn is embarking on a mission to foster a globally branded company. Brands represent certain perception and values for consumers which not only include features, pricing, and technology of products, but other values as well. They include commitment to sustainability and the environment along with social responsibilities in the treatment of workers and suppliers. Do not misconstrue, any company has the right to be a tough bargainer and foster its business goals, but a set of values must be recognized as well.

An important reinforcement to the above is the WSJ reporting of Foxconn’s confirmation that it is bidding to also acquire the flash-memory business of Toshiba Corp.

With the current U.S., political debate leaning toward corporate tax reform and a potential import tax, Foxconn may find itself needing a U.S. presence, not only in support of its own brands, but in supporting its own contract manufacturing customers. The other card that Foxconn has in its favor is its current investments in manufacturing assembly automation utilizing robots, along with access to other U.S. manufacturing centers of excellence.

Foxconn could well re-discover that negotiating is a give and take exercise, with the latter having equal value.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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