Apple Lists Part Suppliers for First Time, Discloses Violations

Apple Inc. (APPL), responding to criticism of working conditions at companies that make parts for its products, listed its suppliers for the first time and disclosed instances of rights violations by some manufacturers.

An annual audit released yesterday pointed to involuntary labor at 17 factories and underage labor at five, according to the company’s supplier responsibility report. Apple, based in Cupertino, California, also published the names of 156 companies that account for 97 percent of the company’s procurement expenditures.

Apple, which began releasing the report in 2007, has faced scrutiny of labor practices at such manufacturers as Foxconn Technology Group. (2317) Environmental and human rights groups have criticized the company for the working conditions and use of unsafe materials by suppliers contracted to build the iPhone, iPad, iPod and Mac.

“We insist that our manufacturing partners follow Apple’s strict code of conduct,” Apple Chief Executive Officer Tim Cook wrote yesterday in an e-mail to employees. “These audits make sure that working conditions are safe and just, and if a manufacturer won’t live up to our standards, we stop working with them.”

Apple’s list of suppliers includes such companies as Broadcom Corp. (BRCM), Samsung Electronics Co., Sony Corp. (6758) and Qualcomm Inc. (QCOM) One component maker not named, OmniVision Technologies Inc. (OVTI), fell 3.2 percent in U.S. trading yesterday.

Apple’s audit examined all levels of Apple’s supply chain, from component suppliers to final assembly.

Violations

In 229 audits, Apple discovered violations, including instances of underage labor; long working hours; unfair compensation; unsafe working conditions; and practices that cause harm to the environment.

In the case of underage workers, Apple said it required the suppliers to support the young peoples’ return to school and to improve management systems to add age-verification procedures. Apple said it ceased working with one repeat offender of its involuntary labor standards.

Apple also discovered 93 factories where records indicated more than half of workers exceeded a limit of 60 hours of work a week. Apple said it required suppliers to change work shifts and hired a consultant to help factories avoid long work hours.

Also cited by Apple were 42 facilities engaged in such compensation-related violations as delayed payment of wages, 67 that deducted pay as a punishment tool, 68 facilities that didn’t provide adequate benefits and 108 that didn’t pay proper overtime wages.

Discrimination

The reports coincided with an announcement that Apple agreed to let outside monitors into factories of its partners. Apple became the first technology company to join the Fair Labor Association, a Washington-based group set up in 1999 to monitor workplace environments globally in an initiative by former U.S. President Bill Clinton. Its participants include Nike Inc. (NKE) and Nestle SA.

Apple also said it found instances of involuntary labor, mainly the result of suppliers that subcontract with labor agencies to hire workers from countries including the Philippines, Thailand, Indonesia and Vietnam.

The company cited discrimination violations, including 18 facilities that screened job candidates or current workers for hepatitis B and 24 facilities that conducted pregnancy tests.

“We classified these practices as discrimination -- even if permissible under local laws,” Apple said. “At our direction, the suppliers have stopped discriminatory screenings for medical conditions or pregnancy.”

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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