A total of 5 million iPhones were returned to the manufacturer Foxconn Technology Group due to subpar chassis or faulty functions, the China Business Journal reported Sunday.
The Taiwan-based electronics assembler received the 5 million phones on March 15, World Consumer Rights Day, said the report, citing an unnamed source close to the company.
Foxconn is expected to spend 200 yuan ($32.40) to reprocess each defective iPhone, resulting in extra expenditures of 1 billion yuan or about two-thirds of the integrated Digital Product Business Group (iDPBG)'s profits in 2012, according to the report. The iDPBG is a division of Foxconn that is responsible for manufacturing the iPhone.
Liu Kun, spokesperson for the company's mainland operation, declined to comment on any speculation relating to its clients when contacted by the Global Times Sunday.
The company has contracts with almost all the top electronic device producers around the world, including Apple Inc, which Liu attributes to the company's "good guarantee of efficiency and quality."
The source attributed the rejects to outdated quality management amid a too-fast iDPBG expansion as a result of robust global demand for iPhones.
Foxconn is growing rapidly in the Chinese mainland, where the number of employees has doubled to 1.2 million from around 600,000 back in 2009, according to Liu.
Apple Inc sold 47.8 million iPhones around the world in the first quarter of fiscal 2013 ended December 29, a 29 percent increase year-on-year from 37 million.
But the labor-intensive Foxconn is experiencing continuous reductions in profit margins due to rising labor costs, which may lead the company to cut costs in materials, Wei Guangju, an analyst with Adfaith Management Consulting, told the Global Times Sunday.
A report by Shenzhen-based market research firm Zero Power Intelligence on December 17 said that Foxconn's profit margins have narrowed to 2 percent from 6 percent 10 years ago and predicted that the squeeze will continue.
Terry Gou, president of Foxconn, announced in 2011 a plan to replace workers with 1 million robots by 2014 in order to cut rising labor expenses.