Will Amazon’s 10,000 Robot Workers Turn it Into the American Foxconn?

Amazon plans to add 10,000 robot workers to its warehouses by the end of the year. Could this move turn Amazon into an American version of Foxconn?

May 29, 2014 at 7:32AM

Amazon (NASDAQ:AMZN) expects to add 10,000 robot workers to its warehouses by the end of the year, according to CNN. While robots are not new to Amazon -- it already uses 1,000 robots in its fulfillment centers -- it would mark a ten-fold jump in non-organic employees. The robots are manufactured by Kiva Systems, which Amazon purchased two years ago for $775 million .


One of Kiva's robots. Source: Kiva Systems.

Although it's easy to see how these robots, along with the delivery drones it introduced last year, could displace a large portion of Amazon's 88,400 employees worldwide, the company has stated that these robot workers wouldn't impact the size of its human workforce.

Nonetheless, Amazon's shift toward robot workers highlights several key issues with the e-commerce giant as well as the changing roles of robots in the workplace.

Amazon's bottom line and worker issues
Amazon is a company with tremendous revenue growth and innovative services. Yet at the same time, it's a company that has struggled with rising costs and widely publicized labor problems.

Earnings have certainly improved -- Amazon reversed its 2012 loss of $39 million, or $0.09 per share, with net income of $274 million, or $0.59 per share, in 2013. Last quarter, it stayed in the black with net income of $108 million, or $0.23 per share, topping analyst estimates by a penny.

But as Amazon's earnings rose, so have the number of complaints against the company's labor practices. Seasonal mandatory overtime of five 11-hour shifts per week, extreme heat reaching 114 degrees in the warehouses during the summer (although Amazon installed air conditioners after 2012), and allegations of unattainable productivity goals have prompted critics to call Amazon's fulfillment centers "near sweatshops." Yet in Amazon's defense, the company generally pays its warehouse workers $9 to $14 per hour -- a higher rate than most warehouse jobs across America.

Is Amazon becoming Foxconn?
Amazon's problems are similar to the struggles of Foxconn, Apple's (NASDAQ: AAPL) Taiwan-based supplier in China.

Foxconn's reputation was badly tarnished in 2010 after 18 employees attempted suicide, resulting in 14 deaths. Foxconn employees have claimed that working conditions are unsafe, overtime pay is insufficient, and that the company hires underage workers.

Yet like Amazon, Foxconn's pay is considered fairly high compared to other comparable local jobs. In 2012, the Fair Labor Association (FLA) reported that Foxconn paid its employees a minimum of $265 to $325 (following a probation period) per month. That was considerably higher than the average monthly minimum wage of $225 in Shenzhen, home to one of its major factories.

While the allegations levied against Foxconn are more serious than those facing Amazon, we already see two distinct similarities -- both companies have unhappy employees who still earn higher-than-average wages.

A similar solution to similar problems
That's where the robots come in. Just like Amazon, Foxconn is moving ahead with a plan to build robots to replace human workers.

Foxconn's plan started in the same way -- its first batch of 10,000 robots, nicknamed "Foxbots," arrived in its factories in November 2012, with a price tag of $20,000 to $25,000 each. CEO Terry Gou declared last June that his company, which employs 1.2 million people in China, would eventually have a million robot workers. While those robots would replace Foxconn's assembly line workers, Gou stated that Foxconn's human workers could be trained as electricians and engineers instead.


Foxconn's "Foxbot". Source: Softpedia.com

Gou's plan is pricey -- a million robots, at $20,000 each, would cost $20 billion. Maintenance fees could easily cost millions more per year. However, it's an investment that Foxconn can easily afford. The company reported $131 billion in 2013 revenues -- a 23% increase from the prior year.

Foxconn's automation efforts also received a big vote of confidence in February, after the Wall Street Journal reported that Google's (NASDAQ:GOOG)(NASDAQ:GOOGL) robotics division -- comprised of eight acquired robotics companies -- was working closely with Gou to realize his vision of a million robot workers.

Amazon's not as big as Foxconn, but it certainly has the resources to pull off a similar move. Amazon reported $74.5 billion in revenue in 2013, and finished last quarter with $8.7 billion in cash and equivalents. If Amazon is indeed following in Foxconn's footsteps, it will be interesting to see if Amazon can keep its promise of bringing in more robots without laying off warehouse workers.

Is this the dawn or the age of robots?
In closing, Amazon and Foxconn's new robot strategies could mark the dawn of a new age of robot workers.

According to a Bloomberg report in March, up to half of the U.S. workforce could be replaced by robots within the next two decades. Loan officers, receptionists, legal assistants, retail workers, food service workers, drivers, and security guards are all considered the top jobs that could be threatened by robots. Meanwhile, jobs requiring high levels of creativity, such as choreographers, or precise dexterity, such as surgeons, were less likely to be replaced by robots in the near future.

Amazon and Foxconn face three key problems -- rising rates of employee dissatisfaction, higher pay rates, and insatiable demands for the faster fulfillment of orders. These two companies have clearly decided that investing in robots is the logical next step. The only question left now is whether other U.S. companies could soon follow suit.

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Leo Sun owns shares of Apple and Google (C shares). The Motley Fool recommends Amazon.com, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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