Low margin OEM likely smashes Gou’s robotic pipedream
Taiwan News, Staff Writer
2014-08-26 03:10 PM

Due to rising labor costs in China, Hon Hai (2317) subsidiary Foxconn recently stated, though it hopes to introduce robots to replace manpower, this project may face challenges.

The Wall Street Journal reported, at the end of 2012 Hon Hai had planned to install one million robotic arms at Foxconn by this year. As of now, only 20,000 have been introduced in a show of lackluster execution. The primary reason for this significant shortfall is extremely low OEM profit may not be able shoulder the high costs of this project.

Analysts stated, currently China’s assembly industry is mainly labor-intensive and low profit. With OEM plants averaging operating profit margins below 5% and considering the high cost of introducing robots, companies cannot bear the cost of increasing automation. Foxconn’s Q2 2014 operating profit margin was only 3.2%.

In addition, promoting electronics product automation is also extremely difficult because many products do not employ large-scale production and if product version changes production must be modified. The installation and modification of robots will significantly increase costs. Automated installation is also more difficult in the complication assembly process. In addition, items with short product cycles and low output will increase cost pressure.

The Wall Street Journal pointed out, the reason Japan and Korean can complete production line automation is due primarily to the stable design and high profit margin of electronic components such as memory chips and LCD screens. According to International Federation of Robotics (IFR) data, for every 10,000 factory workers in Japan and Korea, there are over 300 multifunction industrial robots. It is very hard for China’s 23 robots per 10,000 workers to compete.

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