Zhou Ling, early morning reporter - The world's largest electronics contract manufacturer, Foxconn, announced a salary increase for its employees this week, which could potentially trigger a domino effect.
Executives from HP and Dell, who recently released their financial reports, both expressed that they are closely monitoring the wage hike at Foxconn, and did not rule out the possibility of increasing PC product prices in the future.
HP and Dell are currently the world's first and third largest personal computer enterprises. Most of the personal computers sold by these two companies are made in China. Both have factories in China and also place orders with contract manufacturers like Foxconn.
HP and Dell separately released their financial reports yesterday and the day before, showing a significant decline in net profit during the period.
HP's first-quarter results showed a 7% decrease in revenue to $30.04 billion, lower than the previously estimated $30.67 billion by analysts. Sales in the three key businesses—PCs, printers, and enterprise equipment—all declined. Net profit for the period was $1.47 billion, a sharp drop of 44% compared to the same period last year.
Dell's fourth-quarter report on the 22nd also wasn't optimistic. Dell's fourth-quarter revenue reached $16 billion, an increase of 2%; however, the net profit for the quarter was $764 million, a decline of 18% year-on-year.
The personal computer industry relies on scale effects and efficient supply chain integration to gain low profits. Now, facing the pressure of rising labor costs in Chinese-made electronic products, it poses a significant challenge to multinational electronics companies like HP and Dell. According to Reuters, HP CEO Meg Whitman said yesterday that the wage increase for Chinese workers might eventually affect the global electronics industry. "If labor costs at Foxconn rise, the production costs they bring us will also increase."
Whitman also stated, "However, that will be a phenomenon across the entire industry, and then we will need to weigh how much cost to pass on to customers and how much we absorb ourselves."
Dell CEO Michael Dell also publicly stated on the 22nd, "It is still unclear how much the wage increase at Foxconn will impact our costs. The impact on the entire supply chain also needs to be observed. We will continue to monitor the situation." However, Dell mentioned that labor costs account for only a "very small portion" of Dell's total product costs.
Last week, Foxconn announced a wage increase for workers at its Chinese factories, with an increase ranging from 16% to 25%. This is the third time since 2010 that Foxconn has raised wages for its workers. Foxconn stated that the starting salary for ordinary workers will increase to 1800 yuan per month, and if they pass the regularization assessment, the base salary will increase to over 2200 yuan. Three years ago, the salary for ordinary workers at Foxconn was only 900 yuan per month.
While Foxconn raises salaries, Chinese electronics producers are facing increasingly high costs to attract workers. The Shenzhen municipal government announced in January this year an increase of 13.6% in the minimum wage standard, reaching 1500 yuan/month. Some factories have warned that this measure could become another blow following the decline in orders from Western markets.
Related Reports:
- Foxconn responds to foreign media doubts: 75% of employees earn more than 2200 yuan per month
- Foxconn workers: Reduced overtime hours weaken the effect of pay raise
- Foxconn's midlife crisis: The Achilles' heel of the contract giant
- Foxconn grassroots employee salary increase of 16%-25%, Wuhan sees a general increase of 200 yuan
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Relevant reports:
- Foxconn responds to foreign media doubts: 75% of employees earn over 2200 yuan per month.
- Foxconn workers: Reduction in overtime hours weakens the effect of pay raise.
- Foxconn's middle-age crisis: The Achilles heel of the contract manufacturing giant.
- Foxconn increases grassroots employee salaries by 16%-25%, Wuhan sees a general increase of 200 yuan.
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