Apple’s Positive Earnings Report Creates Bad PR

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Wait, what?

Last week, Apple released its fourth quarter 2011 earnings, posting a profit of $13.06 billion on revenue of $46 billion. Earnings per share were $13.87, far exceeding analysts’ expectations of $10.08 per share. Fueled in large part by their stratospheric sales of the iPad and iPhone, Apple’s monstrous quarter brought bright smiles to shareholders but also started to illuminate the spotlight on a not so glamorous side of their business: outsourcing labor to China. As Apple executives high fived in the boardroom about their booming profits and encroaching world dominance of their devices, new reports began to emerge about the company’s seemingly unscrupulous business practices, namely the work conditions at the Chinese plants that manufacture and assemble their devices.

Normally, when a company releases an earnings report as rosy as Apple’s 4th quarter results, markets rejoice at the positive news and hoist it in the air as a symbol of optimism, which as you may or may not know, is a key barometer of market direction. This is usually followed by a boost in brand sentiment and, if a company is publicly traded, an uptick in share price.

In the recent era of sagging profits and disappointing earnings within a market that is just beginning to poke its head out from the dark shadow of the recent recession, Apple’s earnings report was cause for celebration. They practically carried the S&P fourth quarter profit growth on their shoulders as Wall Street analysts swooned and shareholders chuckled silently to themselves recalling how smart they were to buy a stock that was sure to jump in value with the news.  As glasses clinked in celebration on Wall Street, a lingering PR problem started to swell for Apple.

The earnings report triggered an increase in negative coverage about Foxconn, the manufacturing behemoth that uses Chinese labor factories to manufacture the iPads and iPhones. Apparently, investigative reporting with article titles like, Should Consumers Boycott Apple? has uncovered some not-so-pleasant working conditions in these factories that crank out the Apple products, including a worker who died after completing a 34 hour shift, others whose hands were rendered useless for the rest of their lives from amped up carpal tunnel syndrome, employee dormitory infrastructures that rival modern prisons and stories of workers standing for so long their legs swelled until they could hardly walk. Hardly the coverage that Apple expected after hitting a grand slam with their earnings report.

The earnings report also unleashed a flurry of news stories about the $97 billion cash on hand that Apple is sitting on, with some outlets like the Huffington Post quantifying that amount of money by demonstrating what it could pay for (did you know that Apple has almost enough cash on hand to buy Facebook based on projections of what they will be valued after their pending IPO?). Furthermore, with politicians and the American public’s attention increasingly tuned into the sagging U.S. unemployment numbers, many wonder why Apple is not doing more with their plethora of resources to stimulate job growth in their own backyard rather than continuing to outsource their device manufacturing to a place where they know about unfair and unjust labor practices.

What’s clear is that Apple’s relationship with these Chinese factories is not breaking news. Neither is the subject of whether American corporations have given up on feeling obligated to support American workers. In fact, it’s a controversial topic that has been festering for quite some time with human rights/labor activists and economists. Apple’s case demonstrates that modern PR does much more than highlight the positive or manage the flow of information between an organization and the public. It opens minds to the underlying issues of our time and sparks conversation and debate to educate and spur action. It can act as a rallying cry to support our beliefs and morals or defend brand loyalty in the face of controversy. Whether you support Apple or are against them, the earnings report released last week created a firestorm that few PR execs in the company could have imagined.

P.S. – Apple’s crisis communications team has responded to the recent negativity of its labor practices by releasing an internal staff email written by CEO Tim Cook addressing the issue.

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  • http://twitter.com/elissapr Elissa Freeman

    Great analysis.  Somee think that working for a bigger company is always better; in some cases it is because of the shear amount of resources.  But what it also means is that every move you make and dollar you take is under scrutiny – and can be criticized. As PR pros we like to think we can be ready for anything. Not true. I think it’s a fair point that Apples’ PR execs were blindsided by this one.  However, their response, in my POV was the right one; address the people ‘in the tent’ first because they will be your greatest defense and act as ambassadors for your message.

    • http://twitter.com/John_Trader1 John Trader

      Well said Elissa. The fact that there are so many who are literally addicted to their Apple devices makes it difficult for them to understand what’s going on behind the scenes. If they weren’t a publicly traded company, this might be a different story but their status shines a bright spotlight on the entire business infrastructure.

      I also think that you are right that their first step was to address employees first, and an even smarter move was to make that email public to help drive home the fact that they are serious about this controversy and plan to take steps to address it. Smart PR.