Thursday, October 11, 2012

Apple's iPhone 5 supply issues exacerbated by aluminum case: report

While Foxconn has denied the reports, it was said late last week that somewhere between 3,000 and 4,000 employees struck at Foxconn's Zhengzhou complex in central China last Friday. The issue, it was said, was anger over the pressure of new and over-exacting quality control requirements as well as demands that they work through the week-long National Day holiday.

It appears that there is some truth to that rumored strike, and that Scratchgate is at the heart of it. It's actually more of a complex story than scratches on iPhone 5s, as a source speaking to Bloomberg on Tuesday said.

While new iPhones are always in short supply when they are introduced, this year's supply shortfall is being worsened by Scratchgate, which is a result of Apple's choice of aluminum as the material for the device's case. Scratchgate, related not just to scratches after using the device but - some say - scratches right out of the box, means that Apple and thus Foxconn have cracked down on quality control at factories.

That is precisely the reason behind the reported strike at the Zhengzhou Foxconn plant: increased quality control policies that were put into place to eliminate or at least reduce the scratches. These policies and difficulty in manufacturing the iPhone 5 mean that Apple can't make as many devices as it could sell.

Shaw Wu, an analyst at Sterne, Agee & Leach said:

“The iPhone 5 is not easy to put together because it’s a minimalist design. Apple has a very high standard, where it aims to produce each model to be an exact replica where variance is measured in microns.”

Apple sold 5 million iPhone 5s in its first weekend, but that was lower than some analysts had predicted. Apple's stock hit

Concerns about supply constraints have crushed Apple’s stock. The stock hit an all-time high of $705.10 a share on Sept. 21, the day the iPhone 5 was released, but has steadily declined since then. In the two and a half weeks since the iPhone 5 was released, Apple has lost more than $60 billion in market value.

Apple stock was up $5.06 to $640.91 on Wednesday, Oct 10. The company’s market capitalization is now $600.79 billion.

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