Apple's OEM FoxConn Launching Its Own Retail Stores

Tyler Durden's picture

Two weeks ago, when summarizing the state of the US vs China escalating patent war (for now manifesting itself in the courtroom brawl between Apple and Samsung, but soon to drag many more comparable companies down in drawn out litigation), we observed that while AAPL may have the upper hand, iPhone 5 map fiasco notwithstanding, that "the Chinese politburo can one day decide to pull FoxConn's operational license, in the process bankrupting AAPL overnight" if China really wanted to turn the tables. Obviously, this was the "thought experimental" MAD outcome which leads to loses for everyone involved: both Apple and China (where Apple's contract manufacturer FoxConn employs over 1 million workers). There is one other alternative: that FoxConn, by now having reverse engineered the peak of Apple's brilliance (whose latest evolutionary step was "lighter" and "longer", which anyone could have come up with), decides to brave it alone, and instead of being a contract manufacturer, to simply slap on a FoxConn sticker, a la Acer and ASUS, and sell all Apple-equivalent products at 50% off while collecting all the revenue. Impossible, you say, Apple would never allow it? It is already happening, first in high-growth Brazil, where FoxConn is now launching its own stores.

From Valor International:

Chinese contract manufacturer Foxconn, which produces Apple's Iphone, will create a direct to consumer store at its new R$1 billion factory in Itu, in the state of São Paulo, offering several of the brands manufactured by the company. The plant's project was presented Thursday in the São Paulo's state government headquarters. It will be the 9th Foxconn factory in Brazil, but the first not to be created in leased land, representing a more permanent home for the Chinese giant. The new factory will employ between 5,000 to 10,000 people up to 2016.

As to what products will FoxConn will sell, it is for now unclear but will likely focus initially on merely being a reseller of Apple and other beneficiaries of its OEM supremacy. If this is the route Hon Hai's factories decide to go, it means that the "magic" of the Apple retail experience will soon be rapidly commoditized, once the inventory of the Apple store is replicated down the street at another retail location, one which has its own selling culture.

One thing is certain: if and when it so chooses, FoxConn having reverse engineered a stunning half of the world's entire OEM electronic device product flow, will have its choice of what it wants to bring direct to retail. As a reminder:

Apple’s position as the world’s leading computing device company has driven manufacturing partner, Foxconn, to seize an astonishing 50 per cent of the world’s electronic manufacturing services market, said iSuppli today. Half of the world’s production of consumer electronics devices come from a Foxconn factory, with Apple’s production demand driving this record, iSuppli explains. This is now an Apple world.


“Foxconn’s customers are some of the hottest companies in the electronics business today, most notably Apple,” said Thomas Dinges, iSuppli associate. “As Apple and others have gained share, so has Foxconn.”


With revenue of $17.1 billion, Taiwan’s Foxconn, aka Hon Hai Precision Industries, was the dominant EMS provider in the first quarter of 2010, dwarfing No. 2 player Flextronics International, which posted revenue of $5.9 billion during the same period. Apple represents the fastest-growing customer for Foxconn, which manufactures products including the iPad and the iPhone 4.

In simple terms it's called "economy of scale", or in this case "monopoly", and soaring leverage to do whatever FoxConn chooses. Even if that means taking on some of its core OEM customers: after all where are they going to go?

Which begs the question: what happens to Apple margins and future innovation cycle if it ever were to lose its primary OEM channel should the infighting between the US, Korea (Samsung) and China (HTC), aka West vs East, continue escalating? Not to mention its $600 billion market cap.

And even if FoxConn merely becomes a reseller of Apple and other brands, how long until people realize that at the end of the day absent the creative genius that took Apple to the pinnacle of electronic device innovation under Steve Jobs, all it really is, is a sticker of a fruit affixed to a bunch of products made and packaged by a company operating out of China, which also is the beneficiary of the GDP boost courtesy of iPhone 5 sales, not the US - all the US consumer gets is the credit card bill to fund Chinese economic growth.

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AldousHuxley's picture

outsourcing, offshoring come full circle

as soon as asian slave wage factories get monopoly and get state sponsored commercial copying perfected, apple pie will rot.


roman empire ended when they promoted non-citizens in the high ranks of military who soon wanted independence and roman citizens forgot how to fight.


steve job's legacy on full display.

Sofa King's picture

Did anybody stop to think that this is why Apple has been cracking dorm on patents lately.  Doesn't really matter much, Foxconn has Apple by the balls...evidently the Chinese have not forgotten the works of Sun Tzu.  I talked about this scenario with some die hard Apple drones a few years ago and the response I received is that Apple is the innovation and ideas and without that you have nothing...wrong, labor is everything.  It's all a result of this environment that we have developed where it is more important to have a higher education that a noble craft.  Read a book last summer, I believe it was called "The Puritan Gift", the author gave a great name for what we have, which a large amount of people in "The Cult of the (So-called) Expert"...absolutely brilliant, but i digress. Bottom line, Apple will pay for it's greed and stupidity.  Foxconn can market to quite a few billion people who will gladly ignore US Patent laws.  The result is that Apple will be forced to manufacture locally and be priced out of the market, Foxconn will then move in and take over the scraps.  Why now?  Well it's apparent with this latest iteration of the iPhone, that there is not much left that is required to be furnished in a cellphone; Cloning may commence at full speed.



r3phl0x's picture

I completely agree, the question is whether it's possible to make money shorting it, or whether Apple will just buy enough influence with the Fed/WallSt to keep the stock price rising 100% a year forever on printed money. Income be damned; there is room left for at least a 3-4X higher P/E! Got to keep up appearances, you know.

hangemhigh's picture

TO: Sofa King

Did anybody stop to think that this is why Apple has been cracking dorm on patents lately. Doesn't really matter much, Foxconn has Apple by the balls...evidently the Chinese have not forgotten the works of Sun Tzu.

M chinx has done stole the golden fleece and hi-jacked the cardinal rule of global capitalism:

you can do anything you can get away with.    

I want my simulacra........and I want it………….now


old naughty's picture

Doesn't matter how you look at it, it is a cycle end --- when copycats fight it out in a dog-eat-dog stage. The more innovative (if you can call them that) ones may last a bit longer, but the aura (eh, protective shield) is going fast and the biggest will fall harder.

It's all part of the plan.

Cathartes Aura's picture

that "aura" you mention is just a brand-ing, like a cattle mark of ownership, designed to show loyalty to a corporation. . . that the Job is done, and all that's left is the i-dea becomes obvious.

of course, there will always be fans who live through their brands, but the life-cycle of this i-dea grows increasingly shorter as time speeds up.

oh, and karma, yeah.

theprofromdover's picture

US Patent laws were created to make lawyers money.

You can basically patent anything, and then stand back to watch your lawyers fight someone else's lawyers for who has primacy.

The system should allow any patent until it has be rigorously checked against everything already registered.

But that would be common sense, how can you make a fat buck out of that ...


Come buy my satsumaphone6, fully patented.

Quinvarius's picture

Nothing is more cruel than the cruelty dished out during a civil war.

Ying-Yang's picture

The irony of it all is Apple who is flush the cash could have paid Americans to make products in the US and not have this problem. Apply this thinking to all American based greedy global corporations. Reggie will have an infomercial about this soon.

flattrader's picture

Fuck Apple.   It will get what it deserves.  Jobs got a good dose of so-called "karma" himself.

>>>Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products<<<

Shizzmoney's picture

This just in: Corporations actually really, really, Communism.

At some point, the externalities of outsourcing with out leverage the benefits corporations have had for the last 40 years. 


vast-dom's picture

this is what happens when US companies save by outsourcing.

palmereldritch's picture

Only after complete de-industrialization and bankruptcy can the planned feudal gulag state begin to roll out

EDIT for Addendum:

WASHINGTON – At a time when states are struggling to reduce bloated prison populations and tight budgets, a private prison management company is offering to buy prisons in exchange for various considerations, including a controversial guarantee that the governments maintain a 90% occupancy rate for at least 20 years.

The $250 million proposal, circulated by the Nashville-based Corrections Corporation of America to prison officials in 48 states, has been blasted by some state officials who suggest such a program could pressure criminal justice officials to seek harsher sentences to maintain the contractually required occupancy rates.

"You don't want a prison system operating with the goal of maximizing profits," says Texas state Sen. John Whitmire, a Houston Democrat and advocate for reducing prison populations through less costly diversion programs. "The only thing worse is that this seeks to take advantage of some states' troubled financial position.

States Selling Prisons -- Including Inmates -- to Private Industry

As cash-starved state governments scrape their way through this so-called recovery, they might as well hang signs with this message on their capitals: "Everything must go."  States are hemorrhaging workers and selling off assets at a startling rate as they grapple with anemic tax revenues and dwindling federal dollars. So dire are the states' economic woes that, in recent years, they've begun offloading a more unusual type of property: prisons.

Another growth industry in our Age of Incarceration is prison labor, putting inmates to work making everything from uniforms to furniture for a few cents an hour. As historians and TomDispatch regulars Steve Fraser and Joshua Freeman explain, prison labor has a long and sordid history that should make us anxious indeed for our own degraded economic moment.  Leasing prisoners to companies at wages from hell is a "Yankee invention" dating back almost 200 years that was modern then and, frighteningly enough, couldn’t be more modern today

vast-dom's picture

yeah mr stigmata Chris Hedges discussed that the other day. so here we have the future iFuck gadget assembly workers; better than the chain gang and certainly more profitable than Chinese workers (for prison industry, Apple and NASDAQ) -- maybe the hedge funds can game this a bit more.

if we take the Foucaltian discipline and punish approach we have certainly gone backwards in methods of control, but that is because TPTB are less intelligent and can't see that there is no need to imprison the sheeple and still they can derive cheap labor, since they are already inmates for reasons i'm much too lazy to enumerate...

palmereldritch's picture

We have to keep our minds free at least, the main battle necessary to win the war...They can't take that can they ?...

vast-dom's picture

that is preisely my (Foucalt's) point -- they already have taken the freedoms of mind away or at very least limited the possibilites through idealogical state apparatuses of mostly the most banal kinds. and now the soda that rots your mind/body is the soda that is limited in size for more state control over that which is already a low-grade indoctrination of both body and mind and as such gives great returns: coca-cola co. + 16 oz. LAW + etc. + etc. + etc.


unfortunately Apple does not have a lab-grade SECRET formula; just wait till the Chinese hack the Coke formula and give new meaninging to Chinese PeePee Cola. (Kinda amazing how a secretive company is essentially open source when compared to high-fructose syrup poison water.)

palmereldritch's picture

I'm sure Monsanto is working on just the right dosage as we post...

vast-dom's picture

yeah...i have the first edition 3 stigmata...looking for Ubik........

palmereldritch's picture

A first edition...that's amazing.  A true treasure. That book is seriously trippy...the only thing weirder is how PDK was seemingly a precog himself envisioning their transhumanist agenda. Ubik is fantastic too btw.

My greatest book treasure is a dog-eared paperback of Fear and Loathing in Las Vegas.  Far from a first edition but autographed by Hunter himself.  Hard to get first edition and autographed ebooks these

vast-dom's picture

i have true first Fear and Loathing, but not signed........very cool that Hunter signed yours! A lot of the PDK books were treated as disposable so tough to get....collecting books............

palmereldritch's picture

I agree....that's where garage sales in old neighborhoods or goodwill stores come in handy...the treasures are out there...Keep it real vast-dom. Cheers!

disabledvet's picture

"do not be the story." Hunter S Thompson. Oooops. Too late...

vast-dom's picture

he WAS the story = GoNzo even during the Great Shark Hunt, tho less so....


i think he also said do not green arrow yourself...oh well....

Ying-Yang's picture

The question remains.... will this news impact Apple stock? I think so. So little time so many hedge funds in the hotel.

Stay thirsty my friends.

RockyRacoon's picture

I remember having found a 1st of Been Down So Long It Looks Like Up To Me on a dusty shelf in an Ozark junk store.  I saw it and thought, "No way!".  But... way.   There she sat on on the shelf with a bunch of otherwise dollar-value hardbacks.  I looked around furtively, like I'd just spotted a $100 bill on the floor.  Surely everybody in the store knew I was essentially stealing this book!  Grabbed a half-dozen of the other books, put the jewel in the middle of the stack and got them all for $5 at the register.   It was a very nice copy with DJ and all.  I only read my paperback reprint, saving this one for posterity.

Dr. Engali's picture

Just when you think you couldn't be more disgusted of direction the country is headed something else turns up. It won't be long before we are back public lynchings, and televised executions.

tenpanhandle's picture

to call slave labor a "yankee invention" completely diverts the truth and turns the arguements which contain this into a complete lie and therefor propaganda bullshit.  A half truth is a whole lie.

sessinpo's picture

Agreed. Slavery has been around for thousands of years.  palmereldritch is insincere at best in the post and a douche bag at least for not recognizing this.

The same goes for those anti american post that use things such as colonialism for the ills of the world when the fact is nations have colonized other areas for thousands of years - certainly long before america ever existed.


Liberals have no lows they can reach, but they try.

palmereldritch's picture

Ad hominem.  Awesome.

Why don't you read the article and look at the context instead of excising one statement? The context was organized prison labour forces dating from the 1820s...kinda like the Shawshank Redemption.  There's a movie explanation for you, given your pathetic reading comprehension. I never said they invented slavery. Nice try.

Added bonus: 'Liberal'.  Your programming is primitive...isn't it?

Uber Vandal's picture

Already, some companies are closing facilities due to prison labor in the USA:|newswell|text|Home|s


 A company that makes clothes for the U.S. military will shutter plants in Alabama and Mississippi, shedding about 260 jobs total, as federal inmates begin manufacturing the apparel inside prisons.

Federal Prison Industries, which operates plants inside federal corrections facilities, is not allowed to sell inmate products to private companies, but it can sell to government agencies. The federal law that created the prison industries requires federal agencies to buy inmate-made items even if they are more expensive than like items made by private companies. 



Vlad Tepid's picture

One kind of prisoner making threads for another one.  How ironic.

dark pools of soros's picture

"Another growth industry in our Age of Incarceration is prison labor, putting inmates to work making everything from uniforms to furniture for a few cents an hour"


no more need for FoxConn..and the new jobs program is, go steal something, get caught and get a job!!!   (might be hard getting caught in this country though)

palmereldritch's picture

Just keep up to date on your taxes. 

Taxes that are owed to those same criminals that own the FED, the six primary predatory banks, the private prison industry and thus the emerging gulag economy.

Max Keiser on the global prison economy:

MiltonFriedmansNightmare's picture

This is what happens when you fuck a stranger in the ass!

Ignorance is bliss's picture

Let's hope they fracking learn the lesson before we have no infrastructure left to rebuild upon.



Ying-Yang's picture

We have the resources and people to rebuild. There are a bunch of good people to have a do over. Keep the faith brother!

Karlus's picture

Whats to prevent AAPL from pivoting to Mex? I hear they pretty much buy all the equipment for their suppliers anyhow.

If China burns AAPL, whats to keep .gov from marking all of their T-billz invalid?

jonjon831983's picture

Not to put it down or say it is fine, but atrocities are done by all sides - it is shrugged off as "it's war".

Humans are... human.


If these things are "revealed" now, imagine what could be hidden out there about all sides.

dark pools of soros's picture

That guy is always spouting off about Nazis..  what about the Bolshevik stavation of the Kulaks?  Jews ran that show

palmereldritch's picture

Perhaps more Hegelian dialectic? 

Those forces, Nazism and Zionism appear to have more in common than one would be expected to believe.  Both have a history of being anti-human and anti-Jew.

shovelhead's picture

Does the iphone have an Angry Nazis game?

zerozulu's picture

One day, when US will not be the super power, newspaper will print pictures from Abu-garib, Iraq, Afghanistan, drone kills from Pakistan and Palestine.

Real Estate Geek's picture

. . . and Philadelphia, and Poughkeepsie, and Phoenix, and Portland, and Park City, and Palm Beach, and Prescott, and . . .


Ying-Yang's picture

In other words don't hide out in a city that begins with a P.

slaughterer's picture

Wasn't "Fox Force 5" the name of the TV pilot that the Uma Thuman character in "Pulp Fiction" starred in for her 15 minutes of fame?