* Hours must be cut, some workers worry about overtime

* Report comes day after Apple sets new market value record

* Foxconn says to cut overtime further

By Clare Jim and Poornima Gupta

TAIPEI/SAN FRANCISCO, Aug 22 (Reuters) - Apple Inc and Foxconn have improved working conditions at Chinese factories that make most of the world's iPads and iPhones, according to auditors the firms enlisted to monitor the process, but tough tasks lie ahead.

The Fair Labor Association said on Tuesday local laws require the companies -- which came under fire over conditions at the plants blamed for a series of suicides in 2010 -- to reduce hours by almost a third by 2013 for the hundreds of thousands working in Foxconn plants across southern China.

Foxconn said on Wednesday it would continue to cut overtime to less than nine hours a week from the current 20, even though that could raise labor costs while also making it difficult to attract workers.

"It is a challenge. When we reduce overtime it means we need to hire more people and implement more automation, more investment on robotic engineering. More workers also mean more dormitories and recreational facilities; it takes time," said Louis Woo, special assistant to the CEO of Foxconn.

"But I expect more loyalty from workers as a result, and then we can save more costs on recruitment and retainment," he told Reuters in an interview on Wednesday.

"Yield rates will also improve. Efficiency in terms of productivity, yield gain, retention and lower turnover rates should be able to improve next year."

Earlier this year, the FLA -- of which Apple is a member -- found multiple violations of labor law, including extreme hours, after launching one of the largest investigations ever conducted of an American company's operations outside the United States.

Apple, the world's most valuable company, and Foxconn -- the trading name of Taiwan's Hon Hai Precision Industry whose clients also include Dell Inc, Sony Corp and Hewlett-Packard Co -- agreed to slash overtime, improve safety, hire new workers and upgrade dormitories.

Woo said Foxconn not only wants to do "the right thing" for its one million employees, it also wants to serve as a model for other companies.

In a report tracking the progress of those commitments, the FLA said it had verified that agreed-upon changes had been instituted and that Apple was trying to hold its partner, the world's largest contract manufacturer, accountable.

Auret van Heerden, president and CEO of the FLA, said Foxconn faces a challenge from workers' expectations.

"A lot of workers have clearly come to Shenzhen to make as much money as they can in as short a period as they can, and overtime hours are very important in that calculation," he said.

"We are picking up concerns now on the microblogs about what's likely to happen as hours gets changed, and whether their incomes will be shaved as well."

Many people would leave Foxconn if there is no overtime, according to a post by "Shenzhen Mars" on China's Twitter-like Weibo.com message system.

Foxconn's Woo said the company has been constantly telling workers about the importance of the quality of life and health.

"This is the thing we need to continue to communicate with workers, especially young migrant workers, that anyone who works more than a certain number of hours will feel tired and not well. If we can improve the work environment and benefits, they can enjoy their life better."

At Foxconn's massive factory in Shenzhen's Longhua district, six workers interviewed by Reuters said overtime hours had been cut to between 48 to 60 hours per month, down from some 80 before.

Some said more workers were quitting Foxconn to seek better paid work elsewhere, with red posters plastered on walls everywhere calling for large-scale recruitment of replacements. Staff were getting text messages offering bonuses for referring friends or relatives to the factory.

"A lot of my friends have resigned," said a production line worker surnamed Li. "...From just my home town alone, there have been at least ten people who have left. On a basic level, most workers were able to withstand (the pressures) of the previous overtime system."

But not everyone was unhappy.

"There's been an improvement in the past six months... It's a bit more comfortable with shorter work days," said spiky-haired worker Liu Xiaoguan. But his take-home pay has dropped from around 3,700 yuan ($583) per month to 3,000 yuan.

"I hardly save anything," he said with a laugh. "I like spending too much."


Global protests against Apple swelled after reports spread in 2010 about the suicides at Foxconn plants, blamed on harsh working conditions and alienation felt by migrant laborers, often from impoverished provinces, in a bustling metropolis like Shenzhen, which is home to two of the three factories the FLA inspected.

Apple has tried to counter criticism that its profits are built on the backs of mistreated Chinese workers. The FLA's progress report comes a day after Apple's market value climbed past $623 billion, surpassing the record set by Microsoft Corp during the heyday of technology stocks in 1999.

The latest report card on Apple-Foxconn comes after first findings and a timeline for improvements were announced in March, though some industry observers said the original agreement was not entirely independent because of close ties between the FLA and corporate members.

Since that March audit, rights groups including China Labor Watch have conducted their own studies.

The group said in a statement on Wednesday that Foxconn workers were still unhappy and urged other Apple suppliers to be scrutinized as well.

"Workers have to complete the workload of 66 hours before within 60 hours now per week. As a result, the workers get lower wages but have to work much harder and they are not satisfied with the current situation," it said.

Apart from health and safety enhancements, Foxconn is offering up a few enhancements to employee morale. For instance, Van Heerden said it is increasingly giving workers a choice of accommodation, such as by providing an allowance for housing and food if the workers choose to live off-site.

Foreign companies have long grappled with working conditions in China, dubbed the world's factory because of its low wages and efficient coastal transport and shipping infrastructure. In the 1990s, investigations targeted shoe and apparel maker Nike Inc, which eventually agreed to institute changes.

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  • Handmade Gadgets

    On February 21, <a href="http://www.huffingtonpost.com/2012/02/22/nightline-apple-supplier-foxconn_n_1293393.html?ref=technology" target="_hplink">ABC aired a "Nightline" segment featuring Bill Weir's visit to a Chinese Foxconn factory</a> responsible for making some of Apple's popular devices. During a tour of the factory, Weir says he "expected more robots" but in fact most of the gadgets at Foxconn are made the old-fashioned way: The high tech parts are put together by hand. For example, iPhones are assembled by hand in 141 steps. One iPad takes five days to assemble and passes through 325 sets of hands.

  • Insane Output

    Two shifts of workers toiling in 12 hour shifts can make 300,000 iPad camera modules in one day, not to mention shape sleek iPads out of "raw hunk[s] of aluminum" at a rate of 10,000 per hour. <a href="http://abcnews.go.com/watch/nightline/SH5584743/VD55173552/nightline-221-apples-chinese-factories-exclusive" target="_hplink">Image via Nightline</a>

  • 7 To A Room

    Many workers live at the factory, where they pay $17.50 per month to live 7 to a room in Foxconn dormitories. <a href="http://www.forbes.com/sites/connieguglielmo/2012/02/22/nightline-goes-inside-apple-factories-in-china/" target="_hplink">The average starting salary is $285 per month,</a> and workers must pay for their food. <a href="http://abcnews.go.com/watch/nightline/SH5584743/VD55173552/nightline-221-apples-chinese-factories-exclusive" target="_hplink">Image via Nightline</a>

  • No Free Lunch

    Workers get two hour-long meal breaks during each 12-hour shift. They eat together in a cafeteria where they pay $.70 a meal. This is about a quarter of their hourly wage. <a href="http://abcnews.go.com/watch/nightline/SH5584743/VD55173552/nightline-221-apples-chinese-factories-exclusive" target="_hplink">Image via Nightline</a>

  • Tim Cook Investigated Suicides

    In 2010, after a spate of suicides at Foxconn's Shenzen plant, then COO Tim Cook flew to China to investigate the matter. <a href="http://abcnews.go.com/watch/nightline/SH5584743/VD55173552/nightline-221-apples-chinese-factories-exclusive" target="_hplink">According to Nightline,</a> Cook put together a team of psychiatric experts to examine the issue. It was at that team's suggestion that the infamous nets were installed between the buildings to prevent suicides. There have been 18 worker suicides at Foxconn since 2010. <a href="http://www.reuters.com/article/2012/02/15/us-china-apple-idUSTRE81E1FQ20120215" target="_hplink">According to Reuters' interview with Fair Labor Association president Auret van Heerden, the group's initial findings from its audit of Foxconn</a> suggested that the suicides could have been "a function of monotony, of boredom, of alienation perhaps."

  • Young Workers

    Weir said he was surprised to see how young the workers were. He said many were in their late teens and no one looked like they could be over 30. Many had left their hometowns, oftentimes in the countryside, in order to get jobs at Foxconn. Weir also toured Chengdu and spoke with the relatives of workers who had left for jobs at Foxconn. According to Cult of Mac, <a href="http://www.cultofmac.com/147878/foxconn-employees-say-underage-workers-were-hidden-before-fla-inspection/" target="_hplink">Foxconn may have hidden underage employees</a> when the Fair Labor Association conducted its inspections. While Apple allows for workers as young as sixteen to assemble their products, those eighteen and under are afforded "special protections," <a href="http://www.appleinsider.com/articles/12/02/22/factory_workers_claim_foxconn_hid_under_age_employees_before_fla_inspection.html" target="_hplink">according to Apple Insider.</a> These include not being allowed to perform some tasks and working shorter hours than older workers.

  • Foxconn Exec Wants To Pay More

    When asked how Foxconn would react if Apple suggested doubling workers' pay, Foxconn executive Louis Woo told Weir that the company would welcome a raise for employees. "Why not?" Woo said. "That would be good for the employees and also definitely good for China and good for us."

  • Air Showers

    Workers have to wear static-proof jackets and take "air showers" to make sure the work area remains dust-free. Even one spec of dust could prove ruinous to the iGadgets' delicate innards. <a href="http://abcnews.go.com/watch/nightline/SH5584743/VD55173552/nightline-221-apples-chinese-factories-exclusive" target="_hplink">Image via Nightline</a>