April 16, 2024

A Long Fall for Taiwan Smartphone Maker

Those days are little more than a memory. Its stock price has plummeted more than 88 percent since its April 2011 high. Profits for the second quarter, which ended June 30, were down 83 percent. The company warned that the third quarter looked bleaker still.

It gets worse.

Several of those poached executives, brought onboard to help increase shipments and work on acquisitions have walked away, and there is a growing chorus for the ouster of the embattled chief executive, Peter Chou, as reports filter out of Taipei about an autocratic leader who is out of touch with the industry.

There were also the arrest last week of five departing executives accused of stealing company secrets and padding expense accounts. HTC had filed a complaint against the executives, who included the vice president of product design, Thomas Chien, and the research and development director Wu Chien-hung.

“We are cleaning up inventory and at the same time rebuilding our brand,” said the company’s chief marketing officer, Ben Ho. “If we don’t, there really is no tomorrow for us. The shock came last year. This year we have tried to repent. Are we forgiven? No, the markets will punish you if you don’t repent and recover fast enough.”

Former employees say that marketing, sales and distribution problems, along with spiraling inventory costs, have killed momentum and are dragging HTC into unprofitability.

In the quick-moving mobile devices industry, a lack of momentum is tantamount to a death sentence. Just ask Motorola or BlackBerry.

HTC set up shop as a contract electronics maker in 1999. Founded by Cher Wang, daughter of the billionaire former chairman of Formosa Plastics, Wang Yung-ching, it had to worry only about its margins. The clients took care of the rest. Business was good.

In 2002, it listed on the Taiwan Stock Exchange, starting a run of profitable quarters that will most likely be snapped with the next earnings report. HTC has said that it expects an operating margin of zero or a loss of as much as 8 percent for the third quarter.

By 2006 it had grown weary of slapping other companies’ brand names onto its products and decided to go it alone. A few years later, HTC developed the first smartphone that used Google’s Android operating system.

“HTC has always made great products,” said a recently departed executive, who spoke on condition of anonymity because of the sensitivity of the situation. “There are no problems on the hardware side of the ball. It just can’t sell to save itself. It’s relied too heavily on operator subsidies, and those are drying up for the premium phone market HTC likes to play in.”

The market research firm Gartner said that HTC had shipped 24.6 million smartphones in 2010, accounting for about one in every 12 smartphones bought globally. In 2011, that share increased to 9.1 percent, with purchases surging to about 43 million units.

In Taiwan, HTC was feted in the local media as the little company that could — the former contract maker now on the big stage for its innovation. Politicians urged the public to buy patriotically. HTC was an electronics flag bearer.

The company went on an acquisitions binge, spending more than $700 million, including splashy purchases of the U.S. graphics maker S3 Graphics for $300 million and the premium headphone maker Beats Electronics for $309 million.

Beats, founded by the hip-hop producer known as Dr. Dre, viewed it as a company on the rise when it sold HTC a 51 percent stake. Investors grumbled that HTC had overspent. Beats eventually bought back half of HTC’s stake in 2012 for $5 million less than it had been paid and is looking to purchase the remaining shares.

Article source: http://www.nytimes.com/2013/09/09/technology/a-long-fall-for-taiwan-smartphone-maker.html?partner=rss&emc=rss

Explosion at Apple Supplier Caused by Dust, China Says

SHANGHAI — An explosion that killed 3 workers and injured 15 others last week at a Chinese factory that supplies products to Apple was caused by combustible dust, according to a preliminary investigation by the local authorities.

The explosion, which occurred Friday in the southwestern city of Chengdu, has led to the partial shutdown of a facility operated by Foxconn, one of the world’s biggest contract electronics makers and a major supplier to companies like Hewlett-Packard, Dell, Sony and Apple.

The shutdown has created worries about supply disruptions for some Apple products, including the iPad, which experts say was being produced at the Chengdu facility. The aftermath of the explosion is also the latest problem facing Foxconn, which was hit last year by a rash of worker suicides at several of its Chinese facilities.

Apple and Foxconn, a division of Hon Hai Group, based in Taiwan, issued statements after the explosion last Friday saying that they regretted the tragic accident and that the cause of the blast was under investigation.

City officials in Chengdu said the explosion had been caused by combustible dust in an air duct at a polishing workshop.

Foxconn and Apple each declined to say which products were being produced at the Chengdu facility. Foxconn is one of Apple’s biggest suppliers, and the Chengdu complex is a relatively new facility, with 80,000 employees.

IHS iSuppli, a research group, said Monday that the explosion at the Chengdu facility could result in the loss of production of 500,000 Apple iPad 2 tablet computers during the second quarter of this year. IHS iSuppli said that while most of the iPad 2 production was taking place at another Foxconn facility, in the southern Chinese city of Shenzhen, that facility might not be able to compensate for the disruption in Chengdu.

Foxconn has been moving aggressively over the past year to expand its operations in central and western China to keep up with production demands and to recruit more workers from the poorer, inland provinces.

Apple has a longstanding relationship with Foxconn, which struggled last year to cope with a rash of worker suicides. Some labor rights groups say they believe the suicides were the result of harsh working conditions at Foxconn.

Foxconn, however, insists it treats its workers well. Following the suicides, it hired counselors and put large nets up on some buildings to prevent suicides.

Apple later praised Foxconn’s efforts, saying the company had “definitely saved lives.” But Apple, like other global companies, has to deal with continuing problems that crop up in China’s massive factory zones. Apple has a strict code of conduct for its global suppliers, audits facilities every year and publishes its findings.

Last year, Apple said its audits found that nine supplier factories in China had hired workers below the age of 16, the legal working age, and that other facilities had falsified audit materials and even coached workers on how to respond to questions from auditors. Apple also said in its report that at a supplier factory in the city of Suzhou, 137 workers were exposed last year to the toxic chemical n-hexane, causing adverse health effects.

Some labor rights activists say Foxconn’s working conditions are poor and that Apple and Foxconn have failed to address complaints by workers.

On Monday, a Hong Kong-based labor rights group called Students Scholars Against Corporate Misbehavior said that it had noted a problem with “aluminum dust” in Foxconn’s Chengdu facility last March, when it issued a report on the company’s working conditions there.

The group said workers at the Chengdu facility had complained earlier this year that “the ventilation of the department is poor. Workers polish the iPad cases to make them shiny. In the process, there is lots of aluminum dust floating in the air. Workers always breathe in aluminum dust even thought they put on masks. When workers take off their cotton gloves, their hands are covered with aluminum dust.”

After the statement was released by the group, Foxconn issued its own statement saying it was “unfortunate” that the Hong Kong group was seeking to “capitalize on the tragic accident” with a statement that misrepresented “Foxconn’s commitment to the health and safety of our employees.”

Article source: http://feeds.nytimes.com/click.phdo?i=ddb61a3500ed80c5fd00ea792e9559cb