Scrap Sale: Apple dumps 8 million iPhone 5 units

Apple Inc.’s Chinese manufacturer Foxconn recently got a very expensive lesson in quality (and a rude shock too) when the Cupertino-based technology giant shipped back, with a return-to-sender note, a consignment containing up to 8 million defective iPhone 5 smartphones.

While that has triggered online speculation about another delay in the unveiling of the much-awaited and hugely rumoured transparent iPhone 6 smartphone, the rejected consignment most probably belongs to the current generation of the smartphone, the iPhone 5, and not the upcoming iteration.

Nevertheless, the rejection of the entire consignment, first reported by China Business News is estimated to cost Foxconn upward of $250 million in just labour costs, not to mention the cost of the parts and inventory that will go into replacing the defective devices.

The report (translated by Google Chrome) maintains that, on March 15, 2013, Apple returned five million mobile phones citing “non-compliant” and “dysfunction” issues with the devices. Considering that Foxconn will have been, by now, fairly adept at manufacturing the iPhone 5, this lends further credence to rumours that the rejected lot might well be of the upcoming iPhone 6 or iPhone 5S devices.

Quoting unnamed “Foxconn insiders,” the report says that the number of rejected phones could go up to as much as 8 million. It says that Terry Gou, Chairman and President of Hon Hai Precision Industry (a.k.a. Foxconn) walked onto the shop-floor of the manufacturer on April 16, and urged supervisors and workers “to enhance the yield, professional training, the promotion of morale” while announcing the setting up of a quality control office after the latest debacle.

China Business News maintains that Foxconn stands to lose 200 yuan ($32) apiece in labour costs, which would add up to $256.8 million for 8 million faulty iPhones. It adds that this would imply that two-thirds of Foxconn’s profits for 2012 “will go down the drain”.

The portal did not clarify which model of the iPhone failed Apple’s quality tests, and this is fuelling rumours about a delay in the upcoming iPhone 6. But if it’s the iPhone 5 that Foxconn got wrong, we’ll soon know because an 8 million hole in the supply chain will not go undetected at the retail front, where customers will be told to wait longer than usual for the arrival of the device.

In addition, keep an eye out on ‘scrap sales’ in China for iPhones if they can’t be salvaged to Apple’s liking by Foxconn.

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