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Yesterday, Yahoo turned in what its fans kindly described as a well-at-least-we’re-not-falling-off-the cliff earnings report.

True, true, but it was nothing to be proud of either, with earnings and revenue down in the third quarter, along with a slew of other business deficits. Yahoo CEO Marissa Mayer gamely tried to smooth it all over – a unique talent of hers – in a kind of retro-chic method, by pointing out that Yahoo’s user traffic is back to 2011 levels and that mobile was growing.

Of course, it’s booming everywhere across the Internet, with rivals managing to monetize the explosive growth that Yahoo simply still cannot.

As the New York Times’ Nicole Perlroth aptly wrote in the lede of her piece about the Q3 debacle: “The honeymoon is over … 15 months after she took over, Ms. Mayer has failed to translate Yahoo’s user increase into meaningful revenue growth.”

This is not to say that she will not eventually, especially if she can keep attracting top talent to help her.

But it’s lucky Mayer has the magnificent performance of China’s Alibaba Group as a lifesaver. Yahoo, which owns a big stake in the e-commerce juggernaut, has seen its stock boom in tandem with investor frenzy to get any piece of the Alibaba rocket ship before its expected IPO next year.

Essentially: Buy Yahoo, get Alibaba; or perhaps more simply put, buy Yahoo as a proxy for it.

But why take my word for it? Here’s the Yahoo slides, press release and also a filing on a new agreement with Alibaba to be able to hold onto more of its shares upon the IPO (Yahoo knows a good investment when they see it) to peruse to get a handle on what’s actually going on.

And that is: A still-damaged core business that is struggling mightily to turn around, with a lot of help from Asia and also the mojo provided by Mayer’s own personal halo.

Here’s Yahoo’s own data to look over:

Q313_YHOOEarningsSlides

Yahoo – Yahoo Reports Third Quarter 2013 Results

Form 8-K

(Photo from Mayer’s Tumblr blog, showing new sign at Yahoo’s Sunnyvale HQ with new logo she helped design.)

snapchatdollar640

Only a few months after closing a Series B round of $60 million that valued the ephemeral messaging company at $800 million, Snapchat has been in talks for another funding that values it at up to $3.6 billion, according to sources close to the situation.

Sources also added that the funding itself would be in the hundreds of millions of dollars and that the lead investor might be a strategic party from Asia.

Such a deal could still fall apart, of course, but the effort has become well known among several Silicon Valley venture firms, who have considered investing.

A spokeswoman for Snapchat declined to comment.

The investor is neither China’s Alibaba Group nor Japan’s Rakuten, which has put a lot of money in Silicon Valley startups of late, said sources. One interesting possibility would be China’s Internet giant Tencent, which makes money from in-app transactions.

The move by the Los Angeles-based company comes on the heels of another massive funding round raised by social scrapbooking company Pinterest, which announced earlier this week that it just raised $225 million at a $3.8 billion valuation.

Besides the huge piles of investment dough being poured into them, here’s what else the pair have in common: Little to no revenue.

That does not seem to have stopped a panoply of venture and other investors from jumping in and ponying up with huge amounts of cash for the privilege of investing in several fast-growing startups, hoping to grab ahold of the next Twitter or Facebook early.

Launched in 2011, Snapchat has grown wildly popular in a relatively short span of time, effectively creating an entirely new genre of messaging category with its “ephemeral” pictures and videos that last for only a matter of seconds.

Snapchat’s last round – which it called a “scaling round” for infrastructure improvements – was announced in late June, led by Institutional Venture Partners, with participation from General Catalyst Partners and SV Angel. Previous investors Benchmark Capital and Lightspeed Venture Partners also participated. With that round, the company had raised around $75 million in total.

Snapchat's Evan Spiegel

Snapchat’s Evan Spiegel

All the fervor has been due to Snapchat’s fast growth and younger demographic. Only a few months ago, co-founder and CEO Evan Spiegel boasted that the service had more than 200 million snapped pictures and video taken by its users on a daily basis, up from 150 million just months before. Then in September at the TechCrunch Disrupt conference, he said that the number had grown to 350 million self-destructing messages daily.

At the time, there was also an additional $20 million in a secondary offering just four months ago.

At the time of the June funding, in an interview with AllThingsD, Spiegel noted: “We’re excited about in-app transactions because of what we’ve seen in the Asian markets.”

A clue!

Snapchat has clearly been a phenom of late.

Indeed, the app has proved so popular – and potentially worrisome to established social players – that sources said when Spiegel continually rebuffed Facebook CEO Mark Zuckerberg’s acquisition offers, Zuckerberg cloned the app outright with a service called Poke. Zuckerberg’s offering famously flopped, while Snapchat continues to grow.

Most recently, Snapchat has begun to experiment with features outside of its core ephemeral messaging service. The company launched its Stories product last month, essentially a long-form play on Facebook’s status update in the form of a picture or video. And recently, Spiegel has grown more keen on the idea of monetization, experimenting with bands and listening to music inside the app.

The company, however, has not been without its problems. Early on in its history, Snapchat had to fight the perception that it was a “sexting service” for tweens, a fly-by-night app used to easily spread lewd photos. And it is still involved in ongoing litigation with Frank Brown, a collaborator from the service’s early days, who is suing the company he was pushed out of.

141218383 520x245 Chinas censorship on Sina Weibo in overdrive after former official Bo Xilai is charged with bribery

China’s censorship is in overdrive after a former high-ranking official Bo Xilai was charged today with bribery, embezzlement and power abuse, the Wall Street Journal reports.

Censors have reportedly been taking down unfavorable comments on China’s Twitter-like microblogging platform, Sina Weibo, that criticize the Communist Party or express sympathy for Bo. Many of the deleted posts are shown on the Free Weibo site. The WSJ report also mentions that a note of support from a microblogger in Dalian, the city where Bo started his political career, was later deleted.

It is possible too that some of the posts may have been deleted by Sina Weibo’s “rumor control” team – which aims to dispel false news and information, though in some cases, its hand appears to be forced by the government.

Bo, a former Communist Party politician, captured the attention of Chinese citizens and people from all over the world as details of his allegedly corrupt life surfaced last year – which included links to the mysterious death of a 41-year-old British businessman in a Chongqing hotel room that was declared a murder.

His downfall caused a huge political shockwave that reverberated to the online world, and most comments went through Sina Weibo, with the WSJ noting that back then plenty of posts debated on whether Bo was a criminal or a sacrificial lamb.

Last year, this led to three of China’s most influential Internet companies – Baidu, Sina and Tencent – pledging to “firmly support and cooperate with relevant government departments in cracking down and probing web rumors.”

Subsequently, this time round the comments on Sina Weibo in response to Bo’s news are largely supportive of the government. Several comments say that the Communist Party has made the right decision to charge Bo, and that Bo’s indictment proves the government’s determination to stamp out corruption and that they believe in the Party.

The one-dimensional tone of these comments leaves one to believe that China’s censors have been hard at work. The WSJ report notes that this could be the work of so-called trolls or the “Water Army” – real people who use so-called zombie accounts to post comments online to influence public opinion.

Among other social media services, Twitter is blocked in China. On the other hand, Sina Weibo has more than 400 million registered users and the service enjoys a large profile in China, becoming a force to be reckoned with. This has resulted in Sina Weibo having to walk a fine line between exerting control on the service and letting it operate organically as a forum for dissent and “free”(er) speech. This time round, it seems the government has the upper hand.

Headline image via Mobile Monday Bangkok

87326302 520x245 Xiaomi will make joint announcement with Tencent next week on product related partnership with QQ

Rumors typically abound in the Chinese tech scene, and Chinese smartphone manufacturer Xiaomi has been bombarded by plenty recently – with one report a few days back notably saying that Xiaomi had received an investment of $2 billion from Internet giant Tencent via Russian investment firm DST.

In a bid to dispel these rumors, Xiaomi has confirmed to The Next Web that it will be holding a press conference on July 30 (UPDATE: the press conference has been postponed to July 31) to announce a product-related partnership with QQ – Tencent’s instant messaging platform.

The press conference was first announced on Xiaomi’s official Sina Weibo account, which said that it will reveal an “important partnership” next week. Li Wanqiang, one of the seven founders of Xiaomi, elaborated on the teaser by saying that Xiaomi will be collaborating with QQ – but only in terms of products and nothing else.

You can see a (very cute) poster uploaded by Chinese media outlet IT 168 that depicts Tencent QQ and Xiaomi’s cartoon figures on something that resembles a wedding invitation and alludes to a “happy marriage”, sent by Xiaomi to members of the Chinese media.

Xiaomi QQ Poster Screenshot Xiaomi will make joint announcement with Tencent next week on product related partnership with QQ

All we can do is wait and see what will be announced.

Xiaomi has been well on the rise recently, and it would not be surprising at all for more collaborations to crop up, riding on Xiaomi’s success – which has been attributed to its ability to inspire the loyalty of many consumers. Its competitively priced phones are sold in batches that, when released in phases, regularly sell out fast, often within half an hour.

The last phones it launched were the Xiaomi Mi-2S and the Xiaomi Mi-2A in April this year, which followed last year’s launch of the popular Xiaomi Mi2 phone.

The handset maker booked RMB13.27 billion ($2.15 billion) in revenue for the first six months of this year, exceeding the amount it recorded for the whole of 12 months, which stood at RMB12.6 billion. The 7.03 million devices sold in the first six months this year was also just shy of the 7.19 million units that Xiaomi sold during the whole of 2012.

Earlier this month, it was reported that Xiaomi will be closing a round of funding at the end of July that values it at $9 billion.

Headline image via Thinkstock

idc_china_smartphone_marketshare

China’s smartphone market will experience a massive growth spurt over the next year – one that bodes well for all handset makers that cater to it, but particularly for Apple.

Research firm IDC expects Apple’s share of the smartphone market in China to double from this year to the next. The reason: The debut of the company’s latest iPhones and the expected signing of a long-rumored deal with China Mobile, the country’s largest mobile carrier, with its 700 million subscribers.

As I’ve noted before, China Mobile is the largest wireless carrier in the world and, as such, one of the few remaining carriers that can really move the needle on iPhone sales.

Approximately 180 million China Mobile customers use the company’s 3G network, and, according to ISI analyst Brian Marshall, that’s a decent proxy for assessing the new addressable market that a deal with the carrier would bring to Apple. Said Marshall, “In our view, this potential subscriber base could eventually be almost as large (in unit terms) as the opportunity from AT&T and Verizon in the U.S. combined.”

Hardly a surprise, then, that IDC has concluded that adding China Mobile as a carrier might double Apple’s iPhone sales in China within a year. The only question that remains now is when Apple and China Mobile will announce the deal. Soon, perhaps. As AllThingsD reported earlier this month, China’s Telecom Equipment Certification Center has issued a network-access license for a handset resembling the iPhone that runs on China Mobile’s network, and Apple is said to be preparing to ship iPhones to the carrier.

Lu Haitao is said to be in Washington as dissidents in China face clampdown before key political meetings in Beijing

A prominent Chinese activist is now living in the United States, US officials have confirmed, amid concerns that Chinese authorities have ratcheted up pressure on dissidents to maintain social stability during two weeks of important political meetings in Beijing.

Lu Haitao, a 38-year-old writer and blogger, was repeatedly harassed, detained and interrogated by police last year for vocally supporting Chen Guangcheng, a blind activist-lawyer who escaped house arrest and sought refuge in the American embassy last spring.

The state department spokeswoman Victoria Nuland confirmed that Lu was in the US but refused to give further details, including whether Lu had been granted political asylum. “We don’t confirm or deny asylum issues,” she told Voice of America.

Lu arrived in the US via Taiwan on 3 December and is currently living with his wife in Washington DC, according to Hu Jia, a prominent dissident in Beijing who spoke with Lu via phone on Thursday. “The American state department has been giving them guidance, teaching them how to enrol in school and how to study English with other new immigrants,” Hu said in a phone interview.

According to Amnesty International, Lu was evicted from his residence last year after visiting two of Chen’s family members in rural Shandong province; he faced “incessant police interrogation” after the lawyer escaped. “Sustained police harassment” may have caused his wife to have a miscarriage, according to the organisation.

This week, hundreds of high-level party members converged on Beijing for China’s annual “Two Meetings”, two weeks of rhetoric-laden work reports and political discussions. The Washington-DC-based NGO China Human Rights Defenders said that as part of a wideranging security crackdown during the meetings, Beijing’s dissidents have been detained, beaten at police stations, and forcibly removed from the capital to “travel”.

According to the organisation, police in Tiananmen Square seized thousands of petitioners – citizens attempting to air their grievances to the central government – on 5 March alone. “Officials or hired thugs from various parts of China have intercepted and forcibly returned many of these individuals to their home towns,” it said.

Hu said that although he had been closely monitored by public security agents since 2012, they began entering his apartment late last month without giving him any reason or warning. “I’ve never had pressure like this before,” he said.

Tsering Woeser, a Tibetan writer, was placed under 20 days of house arrest beginning on 1 March, she said in a phone interview on Thursday. Two public security officers escort her every time she leaves her apartment, even on simple errands. “I can still go out, but I need to tell them where and what I am going to, and I have to take their cars,” she said.

Woeser was awarded the US state department’s international women of courage award on 4 March as “the most prominent mainland activist speaking out publicly about human rights conditions for China’s Tibetan citizens”. Last May, Chinese authorities confined her to her home to prevent her from receiving a Prince Claus award at the Dutch embassy.

“The government always uses big words, like strength or rejuvenation, but actually, it is weak and autocratic,” said Woeser. “I don’t think what I’ve said about Tibet is excessive, and I am telling the truth. But the government doesn’t want the truth, and they dread to hear – and do not allow – different voices.”

On Tuesday, Chinese authorities announced plans to spend 82bn on domestic security this year, about 3bn higher than the projected defence budget.

hacked

“Love your Enemies, for they tell you your Faults.” Benjamin Franklin wrote that.

“The supreme art of war is to subdue the enemy without fighting.” The Chinese philosopher Sun Tzu wrote that.

Both come to mind as the world is waking up a newly disclosed body of evidence from the Internet security firm Mandiant, publicly illustrating, in the starkest terms yet, how wide, deep and pervasive computer hacking attacks from China have become. As reported on the front page of today’s New York Times, numerous attacks on American, Canadian and British companies, dating as far back as 2006, have been carried out by a single unit of the China’s People’s Liberation Army. Mandiant, a firm based in Alexandria, Va., has identified it as Unit 61398, operating out of a single building just walking distance from the point in outer Shanghai where the Huangpu and Yangtze Rivers meet.

The company maintains that the unit has compromised the networks of at least 141 companies or organizations, and probably more than that, spending an average of 356 days perusing their networks. In one case, the attackers had unfettered access to a target’s computers and networks for a grand total of four years and 10 months.

Who do they attack? None of the companies are named. But, if you think back, you can remember some names that have disclosed attacks blamed on China, that might fit the bill: Google and Intel have over the years complained in public of attacks carried out by China. The Times says the army unit was the one responsible for the attacks carried out in 2011 against RSA, the security unit of the technology company EMC, which were described at the time as “extremely sophisticated.”

More recently, a series of attacks against media organizations have been attributed to China: The New York Times, The Wall Street Journal (which, like this website, is owned by News Corp.), Bloomberg News, the Washington Post and the Associated Press are among them.

Other targeted industries include information technology, defense and aerospace, energy, transportation, satellites and communications, navigation, chemicals, health care and mining, to name a few.

What do the attackers take? Here’s a list taken directly from Mandiant’s report:

  • product development and use, including information on test results, system designs, product manuals, parts lists, and simulation technologies;
  • manufacturing procedures, such as descriptions of proprietary processes, standards, and waste management processes;
  • business plans, such as information on contract negotiation positions and product pricing, legal events, mergers, joint ventures, and acquisitions;
  • policy positions and analysis, such as white papers, and agendas and minutes from meetings involving high-ranking personnel;
  • emails of high-ranking employees; and user credentials and network architecture information.

Most of the time, the victim company doesn’t even know that its information has been stolen until it is far too late to do anything about it.

Who gets the information in the end? It’s unclear, exactly, and so Mandiant engages in educated conjecture and looks at the available evidence. In one case in 2008, a targeted company suffered an intrusion lasting two and a half years, during which emails and attachments of the CEO and general counsel were stolen. During the same time period, news reports showed that a Chinese company had managed to negotiate a significant increase in the price of a certain commodity component with an unnamed victim company. It may be a coincidence, Mandiant concedes, but then again, it may not.

How do they attack? Usually by sending innocent-looking attachments in email messages. An employee at the target company opens it, triggering software embedded within it that gives attackers remote access to that employee’s machine, which then serves as a beachhead for more attacks. You can see a short video showing some of the attacks actually taking place in the video below.

Certainly, suspicions about China and its intentions, capabilities and actions in this area have pervaded for months. Knowledge about all this has probably circulated within the classified community for years, and no doubt plays a part in the concern among lawmakers and U.S. federal government agencies about the growth of the Chinese networking company Huawei.

Mandiant points to another: Unit 61398, it says, carried out a series of attacks against a unit of a Canadian company called Schneider Electric. The incident was first reported by security blogger Brian Krebs, and was carried out when the unit was an independent company called Telvent. What does the company make? Remote access tools, basically software that lets you control one computer from another computer far away.

The part that should scare you is what kinds of computers this software is intended to control: They’re known generally as SCADA systems, or supervisory control and data acquisition systems. They’re the stripped-down machines that sit between large industrial machinery like generators or pumps, or any other kind of big, automated equipment, and regular computers.

In a series of letters to customers in September of last year, Telvent disclosed that attackers traced to China had installed malicious software on its network, and had stolen files related to a key product called OASyS SCADA, which is designed to connect older IT assets to certain “smart grid” systems running on electrical power networks.

Attacks on SCADA systems can be very effective, in part because the machines involved are older and have tended to be less well-secured. How effective? Remember Stuxnet? The malware attack carried out by American and Israeli intelligence agencies against the Iranian nuclear research program? In that attack, nuclear centrifuges were caused to spin out of control, and ultimately explode. That was an attack against SCADA systems. We already know how easily attacks like it might be carried out here.

Stealing intellectual property and trying to gain an edge in business negotiations is one thing. Penetrating the systems that run critical infrastructure is rather more serious, bordering on sabotage. Now that the government officially considers cyberspace a theater of warfare, similar to land, sea, and sky, this is starting to look serious.

Officials considered ban on foreign artists without university degrees, after star dedicated gig to Ai Weiwei, say sources

Chinese authorities have hardened their line on foreign musicians, after Elton John infuriated them by dedicating a performance to outspoken artist and activist Ai Weiwei, according to industry sources. Police arrived to interview the singer shortly after he announced that the performance, which took place in Beijing last November, was dedicated “to the spirit and talent of Ai Weiwei”, according to two sources. One said officers wanted John’s manager to sign a statement saying the dedication was inspired only by admiration for Ai’s art. John’s spokesman declined to commentwhen contacted by the Guardian.

Ai and John met briefly before the Beijing show, with Ai subsequently announcing to fans on Twitter: “I super like him.” John was allowed to go ahead with a scheduled concert in Guangzhou in early December. But the English language edition of state-run newspaper Global Times attacked John. It said the singer was “disrespectful” when he “forcibly added political content to the concert”, adding: “If they had known that this concert would be dedicated to Ai Weiwei, many in the audience would not have come.

“John’s action will also make the relevant agencies further hesitate in future when they invite foreign artists … [He] has raised difficulties for future arts exchanges between China and other countries,” the newspaper said in an editorial.

The singer’s remarks even prompted the culture minister, Cai Wu, to demand that only stars with university degrees be allowed to play in China in future, according to two sources. They said that days after the concert, Cai gathered those who deal with visiting foreign artists and announced that only graduates should be given performance licences. One source said officials believed it would be difficult to implement the edict, and both suggested it may have been a spur of the moment comment.

A culture ministry spokesman said there were no new regulations. They did not address specific questions that the Guardian had asked regarding the meeting, replying: “About what you said in the fax, there is no such thing”.

Another source said that since the start of the year, classical musicians had been required to supply proof of degrees and other qualifications when applying for permission to tour China. “There is no doubt at all it has made things harder,” said one of those with knowledge of the meeting, adding that several recent applications for licences had been rejected.

“They are looking closely at videos, making sure that the people on stage are exactly the same as in the visa applications, and so on. It’s not a change in the rules as much as a tightening [of existing procedures].”

A fourth source said he was not aware of the ministerial meeting, but that local cultural officials had summoned promoters within a fortnight of the incident to remind them of event rules, which included appearances by foreign artists.

Scrutiny of visiting musicians was tightened in 2008 after Bj rk shouted “Tibet! Tibet!” at the end of her song Declare Independence during a performance in Shanghai. China’s ministry of culture later said that “[her] political show has not only broken Chinese laws and regulations, and hurt the feeling of Chinese people, but also went against the professional code of an artist”.

A ban on artists who did not make it to university would have kept out both John and Bj rk, neither of whom have degrees.

The ministry of culture monitors music for vulgarity, as well as political content. In 2009, it ordered a cleanup of online music sites to address “poor taste and vulgar content”.

Internal audit reveals 106 children employed at 11 factories making Apple products in past year

Apple has discovered multiple cases of child labour in its supply chain, including one Chinese company that employed 74 children under the age of 16, in the latest controversy over the technology giant’s manufacturing methods.

An internal audit found a flipside to the western consumer’s insatiable thirst for innovative and competitively priced gadgets. It uncovered 106 cases of underage labour being used at Apple suppliers last year and 70 cases historically. The report follows a series of worker suicides over working conditions at Foxconn, the Taiwanese company that assembles must-have products such as the iPad and iPhone, and lethal explosions at other plants.

Apple’s annual supplier report – which monitors nearly 400 suppliers – found that children were employed at 11 factories involved in making its products. A number of them had been recruited using forged identity papers.

The report uncovered a catalogue of other offences, ranging from mandatory pregnancy tests, to bonded workers whose wages are confiscated to pay off debts imposed by recruitment agencies. They also found cases of juveniles being used to lift heavy goods, workers having their wages docked as a punishment and one factory dumping waste oil in the toilets.

One Chinese supplier, a circuit board component maker called Guangdong Real Faith Pingzhou Electronics, was axed by Apple after 74 children under the age of 16 were recruited to work on its production lines. According to Apple, the children had been knowingly supplied by one of the region’s largest labour agencies, Shenzhen Quanshun Human Resources. Its investigators found that the agency conspired with families to forge identification documents. Apple did not disclose the ages of the children involved, but its code of conduct states it will not employ workers under the age of 15, or under the legal working age in any jurisdiction – which is 16 in China.

Apple’s chief executive, Tim Cook, who in a previous role was responsible for building Apple’s supply chain, has been under pressure to push through changes after the suicides at Foxconn, whose manufacturing operations are largely based in China. Last September a brawl involving up to 2,000 workers forced Foxconn to close a plant in northern China.

Last year he described the use of underage labour as “abhorrent”, saying it was “extremely rare in our supply chain”, and stepped up measures to weed out bad practice including hiring an independent auditor, the Fair Labor Association.

“Underage labour is a subject no company wants to be associated with, so as a result I don’t believe it gets the attention it deserves, and as a result it doesn’t get fixed like it should,” said Jeff Williams, senior vice president of operations at Apple. He vowed to eradicate the practice, but said it could take some time.

At Pingzhou, the children were returned to their families and the employer was “required to pay expenses to facilitate their successful return”. Although 95% of the facilities scrutinised by Apple complied with child labour laws, transgressors were told to return minors to a school chosen by their family, pay for their education, and give them an income equal to their factory wages.

Bonded labour was discovered at eight factories. In order to find work, some foreign labourers pay fees to a string of recruitment agencies and sub-agencies, amassing huge debts. Their wages are then automatically handed over to pay the debts, tying them to jobs until the balance has been paid off.

Apple ordered its suppliers to reimburse excessive recruitment fees – anything higher than one month’s wages – and said $6.4m ( 4m) was handed back to contract workers in 2012.

Investigators found 90 facilities that deducted wages to punish workers, prompting Apple to order the reimbursement of employees. Mandatory pregnancy testing was found at 34 places of work, while 25 tested for medical conditions such as hepatitis B. At four facilities, payroll records were falsified to hide information from auditors, and at one, a supplier was found intentionally dumping waste oil “into the restroom receptacle”.

Apple said it took measures to protect whistleblowers, and that it made 8,000 calls last year to workers interviewed by auditors in order to find out if they had suffered intimidation.

“Apple Inc.’s iPhone 5 supply shortfall is being exacerbated by a quality-control crackdown at Foxconn Technology Group that’s designed to cut the number of devices shipped with nicks and scratches, according to a person familiar with the matter,” Tim Culpan, Alexandra Ho, and Adam Satariano report for Bloomberg.

“The scrapes, which sparked complaints with the iPhone’s debut last month, are due to Apple’s decision to use a type of aluminum that helps make the smartphone thinner and lighter,” Culpan, Ho, and Satariano report. “Senior Apple managers told executives at Foxconn near the end of September to tighten production standards, said the person, who asked not to be named because the matter was private.”

Culpan, Ho, and Satariano report, “Stricter benchmarks have hampered production of the iPhone 5’s anodized aluminum housings, forcing Foxconn’s Hon Hai Precision Industry Co. (2317) to idle factories, the person said. The slowdown is heightening supply concerns that have cost Apple about $60 billion in market value since the iPhone debut — a shortcoming of the drive to imbue products with qualities that make them alluring yet more difficult to manufacture. ‘The iPhone 5 is not easy to put together because it’s a minimalist design,” said Shaw Wu, an analyst at Sterne, Agee & Leach Inc. “Apple has a very high standard, where it aims to produce each model to be an exact replica where variance is measured in microns.’”

“While Apple sold a record 5 million iPhone 5s the first weekend the device was on sale, the tally would have been higher if not for supply constraints, the company said. Apple shares have declined 9.4 percent since a record close on Sept. 19, two days before the new iPhone went on sale. Apple fell less than 1 percent to $635.85 at the close in New York,” Culpan, Ho, and Satariano report. “‘It’s a trade-off because aluminum is strong and tougher to break, and it’s light and more economical, yet it is also easier to scratch,’ said Jacob Huang, a professor of materials engineering at National Sun Yat-Sen University in Kaohsiung, Taiwan. ‘You could use magnesium, which is lighter, but even softer and easier to scratch, or glass which is heavier but harder yet more brittle.’”

MacDailyNews Take: Or you could use Liquidmetal, if you could ever figure out how to do so at an acceptable cost.

Culpan, Ho, and Satariano report, “While the stricter requirements and assembly disruptions affect output, Foxconn and Apple are well-experienced in dealing with such challenges, said Jeff Pu, a Taipei-based analyst at Fubon Financial Holding Co. ‘These stricter standards would lower the yield on good products being shipped out,’ Pu said. ‘They’ll handle it by increasing labor and machinery, and Apple may even use its cash to buy new equipment to assist Foxconn.’”

Read more in the full article here.

Related articles:
Foxconn Labor disputes said to disrupt iPhone production for 2nd time – October 9, 2012
Foxconn denies plant strike report; Apple shares down with many U.S. stocks – October 8, 2012
Foxconn: No strike at China iPhone plant; production remains on schedule – October 6, 2012

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