UPDATE 3-Foxconn wants to raise prices to offset wages

Tue Jun 8, 2010 4:54pm EDT

Related Topics

* Hon Hai, Foxconn AGMs after spate of worker suicides

* Planning to shift some production back to Taiwan

* Small protests outside AGMs in Taipei and HK

* Hon Hai, Foxconn shares slide, down 10 pct in 2 days

(Adds analyst comment on PC maker impact)

By Faith Hung and Kelvin Soh

TAIPEI/HONG KONG, June 8 (Reuters) - iPhone maker Foxconn International Holdings Ltd (2038.HK) said it will seek higher prices from clients to help offset wage increases at a plant in southern China that has been hit by a series of suicides.

Meeting shareholders in Hong Kong for the first time since the deaths, executives at Foxconn, owned by Taiwan's Hon Hai Precision Industry Co Ltd (2317.TW), said the company hoped to reach a consensus with customers this month.

Hon Hai, the world's biggest contract electronics maker, with a client list that includes Apple Inc (AAPL.O), Dell Inc DELL.O and Hewlett-Packard Co (HPQ.N), has been wrestling with the fallout from 10 suicides in the last five months.

The suicides and controversy come amid growing labour unrest in southern China, the world's top manufacturing region, where millions of migrant workers from the country's poor hinterlands churn out goods for top global companies. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ TAKE A LOOK on China labour issues [ID:nSGE65103V] Reuters Insider on China wages: r.reuters.com/vax67k BreakingViews on Henry Ford lessson for China [ID:nLDE6531FP] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

At a separate shareholder meeting in Taipei, Hon Hai Chairman Terry Gou defended the company he founded in 1974 to make plastic switches for televisions, saying a report he commissioned showed no clear link between the suicides and work issues.

"We have to carry the 12 crosses, we have no options," Gou told shareholders, referring to the 10 suicides and two other attempted suicides.

But in a sign of changes ahead, Taiwan's richest man said the company was looking for locations in Taiwan to shift some unspecified production from China to automated plants in Taiwan and wanted local authorities in China to manage its worker dormitories.

Analysts said already razor-thin margins at Foxconn and Hon Hai would likely suffer as they wait to pass on the cost increases and the shares of both companies continued to slide, taking losses over the past two days to more than 10 percent each.

"In the near term it's quite unlikely they can pass the cost increase to customers, but in longer term it is reasonable ... customers may need to share part of the cost," said Chialin Lu, an analyst at Macquarie Equities Research in Taipei.

"It will have bigger (earnings) impact, especially in the second half of this year, as most of the salary rise will come into effect in July."

Hon Hai said the wage increases would hit profits in the fourth quarter and into next year's first quarter.

GROWING LABOUR UNREST

Kaufman Bros analyst Shaw Wu did not see a major impact for now on global computer makers from a Foxconn price rise, but said lower-margin players -- such as Dell -- could get squeezed to some extent.

Depending on the magnitude of any price rises, he thought f Apple and Hewlett-Packard could easily absorb the extra cost. But Foxconn would have to be careful not to drive business toward rivals.

"The guys that have thinner margins and less diverse business models would feel any impact, like Dell, Acer and Lenovo," he said. "These OEMs have a choice, they don't have to go with Foxconn. They could go with Quanta, Compal, Pegatron. At the same time, Foxconn is hugely important, everybody uses them."

Apple, HP and Dell all declined comment.

Other international companies have also been hit by industrial unrest in China, which usually acts quickly to quash any threats to social order.

Japanese car maker Honda Motor Co Ltd (7267.T) faced a new strike at a parts supplier just days after settling a dispute at a separate supplier [ID:nTOE65701L], while Taiwan components maker Merry Electronics Co Ltd (2439.TW) said workers at its Shenzhen plant briefly stopped work on Sunday in a dispute over shift work.

Hon Hai has announced two wage rises in the past two weeks for workers at the sprawling plant in Shenzhen, where some 400,000 staff assemble iPhones and other gadgets. Gou also told shareholders on Tuesday he would limit overtime at plants in China to no more than three hours a day.

A group of about 30 protesters gathered outside Hon Hai's meeting, including labour activists, green and gay groups and even some representing prostitutes, drawn mostly from Taiwan's league of "professional protesters" seeking the attention they would get from a top media story.

"I think Gou is trying to use salary hikes to cover up how his production line is killing people. It's a crime in management and we really despise it," said Huang Hsiao-ling, secretary general of the Worker Injury Association, a labour group.

About a dozen protesters stood outside the Hong Kong shareholders' meeting calling on Apple to act on Foxconn. Apple CEO Steve Jobs expressed concern last week over the deaths, but said the plants were not sweatshops.

Holding placards reading "Workers are not machines. They have self-esteem" and a picture of a rotten apple, protesters handed a petition to a company representative.

Gou, 59, also announced plans to more than double the size of a share issue to fund future expansion for Hon Hai, including into cloud computing and LEDs, among others. Guo said the company will issue up to 880 million shares in depositary receipts. (Additional reporting by Roger Tung and Christine Lu in TAIPEI, Donny Kwok and Bobby Yip in HONG KONG and Gabriel Madway in San Francisco; writing by Jonathan Standing; editing by Lincoln Feast, Ian Geoghegan and Andre Grenon)

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