Wednesday, February 15, 2012

Apple: Shares, Trademarks, Ethics and China

In 1997 Apple share were worth as little as $3.19 and the company even faced the possibility of bankruptcy. Yesterday, the shares passed $500 (£317) a share for the first time and rumours and enthusiasm continued to mount about the new iPad. It is a truly remarkable turnaround and values Apple today at some $460bn.

There are reports claiming that Apple has ordered some 65 million 264PPI 'Retina Displays' from Samsung and LG for its iPad 3 assembly line. The numbers if correct would indicate that they expect a significant uplift in sales over that of the iPad2, which was released only a year ago. With the anticipation that an iPad 3, will be announced on March 7th, it appears clear that Apple is confident its 3rd generation iPad will break all previous sales records.

Enter the dragon in the form of China and two stories which although unrelated have the potential to impact the party.

Who Owns The trademark iPad in China?

Apple is a brand leader and has created a family of iconic brands and patented technology which it has protected and managed with vigour. Today it faces a trademark battle with Chinese company Proview Technology over the 'iPad' trademark.

Apple had paid some $55,000 to buy the European rights to the "iPad" trademark from Proview's parent company. Proview had registered the mark in several countries back in 2000, with China being added in 2001. Proview now claims that it holds the right to the name "iPad" in China and that this was not sold to Apple.

So is this a false claim by Proview, or will Apple have to dig deep to now buy the mark that they have globally established? The challenge for Apple is that it is in China which can’t be ignored and is now a super economic powerhouse and also one of their major markets.

A court in Shenzhen in December dismissed Apple’s claim that it owned the iPad name in China and following the ruling, Proview requested the authorities in over 20 Chinese cities to investigative whether iPads were being sold. Now Chinese site Hebei Youth Daily reportsd that on Monday China's Trade and Industry department was actively confiscating Apple's iPads from store shelves in Shijiazhuang, because the tablets are, ‘being sold in violation of Chinese trademark law.’ Authorities are also reported to be acting in a second Chinese city, Xuzhou.

Lawyers representing Proview Technology are also reported to be seeking a ban on exports of iPads from China. As China is a key manufacturing base for Apple, this move could have an impact on iPad global sales.

However, an out-of-court settlement is expected, with the next court hearing due on February 22 in Shanghai. Some analysts expect a settlement could be around 10 billion Yuan ($1.6 billion US). A high price to pay but one that shows the value of the global iPad brand. It will not be the first brand ‘mistake’ by Apple who famously had a long standing dipute with the Beatles Apple organisation and even tried to claim iTV without a thought for the UK company ITV.

Some would suggest that the fact that China recognise trademark law is a huge step forward and that they are using it against a western company is somewhat ironic.

The Ethical Workplace

In a second Chinese issue Apple find themselves under the scrutiny of employment ethics on the issue of using underage workers and also the earnings of the workers in its supply chain.

Speaking at a Goldman Sachs technology conference Apple CEO Tim Cook tackled the topic of conditions in Apple's supply chain in China and other countries, ‘Apple takes working conditions very seriously, and we have for a very long time. Whether workers are in Europe or Asia or the United States, we care about every worker. Apple's suppliers must live up to this to do business with Apple.

However, CNN recently interviewed an 18-year-old employee at Apple’s Foxconn, a key supplier, where a worker claimed that she was forced to work overtime and did not receive benefits and sick days.

Last month The New York Times claimed that Apple found ‘consistent violations’ of its code of conduct after inspecting 396 of its facilities. They cited that; ‘The workers assembling iPhones and iPads…work excessive overtime’ and that, 'Some say they stand so long that their legs swell until they can hardly walk.’ Worse still, there have been a number of attempted suicides at the Foxconn facilities and it is claimed that last month, 150 Foxconn employees threatened to leap from a three-story building after claiming of poor pay and pressurised working conditions.

Apple has subsequently asked the Fair Labour Association (FLA) to audit Foxconn facilities in Shenzhen and Chengdu, China. It is then planned that the audit will then move on to other Apple production partners. Apple says that by the time the FLA is done, facilities that produce more than 90 percent of its products will have been inspected.

Cook stated that in January, Apple collected data every week on more than half a million workers in its supply chain and achieved 84% compliance.

However today, The Korea Daily, raised the issue of worker pay and claims that factory workers in China who are producing iPads collectively earn about $8 per unit or about 1.6% of the cheapest iPad's price. This contrasts starkly with with Korean factory workers, who earn about $34 per unit or 6.8 % of the sales price.

Apple is probably better than many on the issue of ethics, but they are also now more visable than probably all the others. As their share value and sales continue to rocket this raises many obvious questions. So the ethics issues have to be faced head on by the company if it is to retain its valuation glow.

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