Apple Moves in the Right Direction

This article is part of our Rising Star Portfolio series.

Apple's (Nasdaq: AAPL  ) making a move in the right direction. I'm not referring to its stock price, which vaulted over the $500 mark earlier today. I'm referring to the reason I haven't considered it as a stock to purchase for the socially responsible Rising Star portfolio I'm managing for Fool.com.

Why not?
Last September, I revealed why I wasn't considering purchasing Apple shares. I acknowledged the many beautiful things about Apple. However, what I didn't consider so beautiful was the amount of pain in its supply chain, and that's why I simply couldn't in good conscience consider investing in Apple.

Since then, Apple's been addressing that element of business, which has been attracting more and more attention.

Companies like Apple rely on inexpensive labor in countries like China to manufacture their products at hefty profits. However, over the past several years it's come to light that the Chinese workers who make our most-loved gadgets are subjected to labor conditions that would never come to pass here in America. We'd decry these conditions as downright inhumane, as a matter of fact.

Factories like the much-mentioned Foxconn and others with similarly poor working conditions supply products to companies like Apple, Dell (Nasdaq: DELL  ) , IBM (NYSE: IBM  ) , Sony (NYSE: SNE  ) , and Hewlett-Packard (NYSE: HPQ  ) on the cheap.

However, more and more media outlets have revealed the dark sides of these foreign factories that help American companies turn a bigger buck. Environmental problems and employee suicides have made headlines, but we've also been learning that the daily grind is truly and literally a grind for the human beings who work at factories like these.

The New York Times sent the message home in grim detail. It described the lives of Chinese workers who sometimes toil seven days a week, work excessive overtime, and live crammed in crowded dorms together so they can be summoned at a moment's notice to start cranking out the components. Unhealthy conditions abound, and underage workers are called to duty, too. Tidings of improper disposal of hazardous materials and falsified record-keeping completed the dismal message.

Headlines about worker suicides are jarring and awful, but obviously that's just the horrifying side effect of the core problem: work conditions that are consistently below American standards of employee treatment.

The big cop-out
Here lately, many, many angles concerning Apple's unappetizing supply chain have been explored. The New York Times also recently explored why Apple "can't" bring manufacturing back to the United States. The article revealed the late Steve Jobs' response to President Obama's question about the idea of bringing Apple's manufacturing back home: "Those jobs aren't coming back," Jobs said. Ouch.

The article boiled down the problem to this nutshell:

The president's question touched upon a central conviction at Apple. It isn't just that workers are cheaper abroad. Rather, Apple's executives believe the vast scale of overseas factories as well as the flexibility, diligence, and industrial skills of foreign workers have so outpaced their American counterparts that "Made in the U.S.A." is no longer a viable option for most Apple products.

Of course, "flexibility" and "diligence" are nice ways to describe the aforementioned labor conditions at the factories in question. Note the Times' article's anecdote about a last-minute change to an Apple product, resulting in a situation in which the Chinese factory in question roused sleeping workers to get to work immediately, sometime after midnight.

Right. That would never happen in America; we all need our beauty sleep.

Business Insider's Henry Blodget recently pointed out an important element that is too often absolutely blown off by investors: Apple is so strong, and so profitable, that it actually does have the power and the leeway to improve its supply chain without destroying or even really hurting its business or profitability.

Apple's not struggling to generate sales or turn a profit. This is a company that racked up $127.8 billion in sales in the past 12 months. It's got $30 billion in cash on its balance sheet, and no debt. This is a company that has the resources to create a better future, including helping to imagine ways to encourage a return to America's "industrial skills" that are supposedly now lacking.

Think better
However, I did start off by saying that Apple's moving in the right direction. I'm referring to Apple's recent pact with the nonprofit Fair Labor Association. The Wall Street Journal has reported that FLA has begun inspections of some Apple suppliers' factories today, conducting an audit on working conditions.

In the past month, Apple has made several other moves in the right direction, too, including disclosure of its major suppliers and detailed reporting on factory inspections.

In many ways, I agree that Apple is one of the truly great American companies, with its beautifully designed products and track record for vision. As I've said before, there was a point when most of us would have thought having our entire music collection in our pocket was an outlandish thought. Apple has made many impossible or even unthinkable things possible and prevalent.

That's why I hope that when it comes to the supplier issues, and even manufacturing here in the U.S., Apple can set itself toward doing what everyone, even its own management, may believe is "impossible." Apple may think different, but it can think better, too. Plus, hey: I'd love to get a piece of Apple in my Rising Star portfolio one day and feel great about that choice for reasons that go far beyond bottom-line profits.

If you're interested in Apple, you may also be interested in discovering 3 Hidden Winners of the iPhone, iPad, and Android Revolution. The report's free now, but it won't be forever -- don't wait.

Alyce Lomax owns no shares of any of the companies mentioned. The Motley Fool owns shares of IBM and Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple and writing covered calls in Dell. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2012, at 9:32 PM, H3D wrote:

    So much spin.

    This is not concern for Chinese workers. This is US protectionism trying to destroy the jobs of Chinese workers to promote the interests of US workers.

    It's hypocrisy in its purest form.

  • Report this Comment On February 14, 2012, at 12:51 PM, macdesktops wrote:

    Any suicide is a tragedy. That's universal. However, without context it's meaningless. How does the suicide rate at Foxconn compare to the rates for its competitors? For its region of China? For rural China? For urban China?

    How do the wages compare against the same markers?

    Why are there underage workers? Were they press-ganged? Did their parents force them? Or did they lie about their age in order to work?

    Who lives in the on site dorms? Are the rents high or low?

    Finally, how does Apple compare to every other tech company which manufactures in China?

    Without asking and attempting to answer at least some of these questions and trying to establish a context, you should keep you indignancy to yourself.

  • Report this Comment On February 15, 2012, at 7:17 AM, RetiredinFL08 wrote:

    Alice, Thank you for your essay. I for one understood its message and intent. As an investor I do appreciate knowing as much as possible about my investments. Well done. A follow up article on the industry would be well received.

  • Report this Comment On February 15, 2012, at 12:20 PM, Mbarnes4 wrote:

    Are you serious? Wow, if the above comments are a reflection on where we are as a society it's pretty pathetic!

    Asking how Foxconn compares to other manufacturers is like trying to say it's a valid excuse that you're speeding because everybody else is!

    I'm as thrilled with the performance of Apple stock as the next investor and I have become an Apple product convert too but if both if you don't think it's disturbing that Apple condones this, there's something wrong with you.

    I read the recent book on Steve Jobs and certainly, he was hard on his employees and sometimes demanded they work extreme hours to complete a product but they were rewarded handsomely and could simply quit if they didn't like it.

    And, if I remember correctly from the book, Jobs said this type of work wouldn't come back UNLESS the US had trained Manufacturing Engineers to manage and run the plants.

    More importantly, ask yourself if YOU would work under these conditions, or be okay if your CHILDREN or GRANDCHILDREN were forced to. You call that "hypocrisy"?

    And to state "keep your indignancy to yourself"? Wow, were you forced out of your cramped dorm room at midnight to read this?

    Both of those comments reflect the current sense of entitlement and selfishness in the current environment. Pathetic

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