Foxconn's big con.

Consider me appalled.

For years the industry has pondered the mystery that is Foxconn. It's hard to say which has been more remarkable: The EMS/ODM/connector supplier's astounding growth, or the veil of secrecy that cloaks it.

About that growth. Over the past 10 years, Hon Hai--the company's Chinese name--reported revenue has grown more than 50% each year. Sales hit $40.6 billion last year.

In terms of size, the competition pales against Foxconn's girth. No. 2 Flextronics was a shade under $20 billion for the four quarters ended June 29. Add in Solectron and Jabil, Nos. 3 and 4, respectively, in the EMS rankings, and the combined entity in 2006 sales would just about match Foxconn.

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But not for long.

That's because Foxconn's revenues are forecast to jump another $14 billion this year alone. That figure alone is more than the total revenues of any ODM or EMS company besides Flextronics and Asustek last year. By itself, Foxconn grew more than the rest of the top 10 EMS suppliers combined in 2006. (Thanks to iSuppli for the data.)

That makes Foxconn larger than all but the largest of its customers. Motorola had sales of just over $40 billion in the four quarters ended in June. Apple did a pedestrian $22.5 billion over the same span. Nintendo turned in a paltry $8.5 billion. Dell reported $55 billion for fiscal 2006, but is undergoing SEC scrutiny for its finances. Of Foxconn's acknowledged customers, only H-P remains appreciably larger.

The numbers are staggering. It's enough to make Steven the Dell Dude swallow his joint.

The man behind the Hon Hai curtain, chairman Terry Guo, finally came clean--sort of--last month in an interview with the Wall Street Journal. ("We are so big we cannot hide anymore," the WSJ quotes him as saying.) After five years of trying, the paper finagled a trip inside (http://online.wsj.com/article/SB118677584137994489.html?mod=googlenews_wsj) one of the Foxconn fortresses--in this instance, its Shenzhen citadel, a one-square mile walled city, in which some 270,000 workers toil away each day.

Even for those of us who lived through Enron, it's hard not to come away disgusted. "'I always tell employees: The group's benefit is more important than your personal benefit,'" the WSJ quotes Gou as saying.

In Chinese, "the group" must translate to "Guo," for while what the WSJ characterizes as a typical midlevel assembly-line worker in one of his plants earns about $230 a month, including overtime pay, the chairman's net worth is a cool $10 billion.

Wait a minute, cynics may say. Sure Guo's made a mint, but didn't President John F. Kennedy say as much when he made his famous, "Ask not what your country can do for you, but what you can do for your country" speech? Well, sort of. Except JFK was president of a country staring down a nuclear-armed adversary, not a company manufacturing iPods.

OK, then what about the fortunes of Bill Gates, Michael Dell or Steve Jobs? That trio of tough-minded tech CEOs is worth $50 billion, $13 billion and $4.9 billion, respectively, according to Forbes 2006 rankings. Given their wealth, surely Guo's affluence is proportionally relative.

Nothing doing. Guo has made his billions not on ideas but on the backs of his employees' sacrifices. By contrast, so-called "Microsoft millionaires" are about as ubiquitous as its operating software: At last count (2005) the company's success had moved more than 10,000 employees into the Seven-Figure Club. Dell has turned so many would-be ranch hands into mini-bankers, the Austin papers coined a phrase for them: Dellionaires. To be sure, expenses are a bit higher in San Jose than Shenzhen. But Foxconn takes the worker-employer relationship to the extreme.

Despite this, Hon Hai doesn't take criticism lightly. Last year, in the wake of a China Business News story on the austere working conditions of one of the company's Chinese manufacturing facilities, Hon Hai sued the author and her editor for damages in the amount of $3.75 million--or a little less than the company grossed in sales per hour last year. A Chinese court then froze the personal assets of the two journalists, it was reported, including their apartments, a car and bank accounts. (Hon Hai later withdrew most of the suit, but in 2004, the company filed a similar complaint against a Taiwanese reporter.)

I like Dell and Apple as much as the next gadget freak, but there's only so long these companies can turn a blind eye. As China's quality problems spread, OEMs have the necessary cover to reconsider their choice of manufacturing partners. As well they should.

I'm not calling for a boycott of Foxconn-built products--yet. But to be safe, I probably will call a lawyer.

Mike Buetow, Editor-in-Chief

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