UPDATE 1-Hon Hai to raise China wages after spate of suicides

* Hon Hai to raise worker salaries by 20 percent

* Move could erode profit 10-12 percent – Citi

* Company struggles to quell public anger

* Shares about 1.2 pct down vs broader market’s gain
(Adds details, quotes)

By Jonathan Standing

TAIPEI, May 28 (BestGrowthStock) – Taiwan’s Hon Hai Precision
Industry (2317.TW: ) plans to raise workers’ salaries by about 20
percent at its Foxconn unit in China, as it struggles to stop a
spate of worker suicides and quell rising public anger.

An employee of Foxconn (2038.HK: ), maker of Apple Inc (Read more about Apple stock future.)’s
(AAPL.O: ) iPhone, jumped to his death late on Wednesday,
bringing the total of such apparent suicides to 10 this year.

Another employee attempted to slit his wrists, but survived
with medical attention, Xinhua news agency said late on
Thursday.

A small worker protest formed in front of Hon Hai’s head
office in Taipei on Friday morning, with protesters setting out
candles and white flowers as security guards watched.

Hon Hai spokesman Edmund Ding said the increase in the cash
portion of pay packages for all its workers in China had been
planned for some time. He did not say when the raises would be
implemented.

“It may help the suicide situation, because we workers just
need money and the financial pressure on us is great,” said a
Foxconn employee surnamed Wang, reached by telephone at the
company’s factory in Longhua, an industrial town north of
Shenzhen. “Every little bit helps.”

The spate of deaths has thrown a spotlight on the labour
practices of Foxconn, whose clients include Dell Inc (DELL.O: ),
Hewlett Packard Co (HPQ.N: ) and Sony Ericsson
(ERICb.ST: )(6758.T: ).

Apple and other clients have said they are investigating
working conditions at Foxconn, which has about 420,000
employees at its base in Shenzhen and has come under fire for
its secretive corporate culture. [ID:nHKU002337]
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To view Reuters Insider on Foxconn deaths click:
http://link.reuters.com/haj66k
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FINANCIAL IMPACT

The planned pay rise could raise Hon Hai’s quarterly labour
costs by about T$2.7 billion ($84 million), which would erode
its operating profit by around 10-12 percent, Citi said in a
report.

Other analysts disagreed with Citi’s assessment.

“I don’t think this will impact Hon Hai’s profitability,”
said Vincent Chen, an analyst at Yuanta Securities in Taipei.
“Salaries for production workers are usually raised at around
the third quarter, which is the peak season for most contract
manufacturers as they gear up for the year-end holiday season.”

Chen added that labour costs accounted for only around 2
percent of Hon Hai’s operating costs and a salary increase of
about 20 percent was not unusual.

“Hon Hai has raised salaries by up to 50 percent in the
past, and it’s still doing well,” he said.

Hon Hai shares were down 1.2 percent on Friday morning,
trailing the broader Taiwan market’s 1 percent gain. Foxconn’s
Hong Kong-listed shares were up 0.8 percent, also trailing a
rally that saw the main index up 1.8 percent.

Entry-level line workers at Foxconn’s factory in Longhua
earn just over 900 yuan ($131.80) per month before overtime and
bonuses, said Zhu Fuquan, a production supervisor for the
company.

Foxconn was rumoured to be paying around 100,000 yuan to
compensate families of suicide victims, said factory worker
Wang, a sum he said was tempting some victims given their low
base wages.

On Wednesday, workers said they had been asked to sign a
letter from Foxconn, including a clause saying the company
would pay no more than the legal minimum for injuries sustained
outside the workplace.

Confronted with the letter, Gou apologised and said he was
taking it back, calling the language inappropriate.

Stock Report

($1=32.03 Taiwan Dollar)
(Additional reporting by Doug Young, James Pomfret and Kelvin
Soh in Hong Kong, and Roger Tung in Taipei)

UPDATE 1-Hon Hai to raise China wages after spate of suicides