updated 10:45 pm EDT, Mon May 23, 2011
Prolonged closure could affect Apple, HP, others
Hon Hai, the parent corporation of Foxconn, has announced the closure of all their polishing workshops pending inspections, lending credence to the government task force theory that combustible dust was ignited, sparking an explosion on Friday at the company's Chengdu plant that killed a total of three workers and injured many others. The polishing process, one of the last stages of product assembly, is used to polish Apple's iPad cases and other electronic parts for other companies, creating fine dust of various elements such as aluminum, which is highly combustible when airborne.
The closure of the polishing workshops could have a disruptive effect on many manufacturers, not just Apple, according to a report in The Wall Street Journal. Foxconn also makes products for HP, Sony, Dell, Ninendo, Acer, Amazon and many other electronics companies.
Although the company has said that the closure is likely to be short (expected to be about two days, according to a spokesman from the company), a prolonged closure could create a bottleneck of unfinished products. Analysts say Foxconn will likely shift production duties to unaffected plants to minimize any disruption, which could affect inventory levels and later processes like packaging and shipping.
Apple is likely to be among the most affected by any prolonged disruption at the Chengdu plant, as Chinese media reports say the facility is almost totally devoted to manufacturing the iPad, which has been in heavy demand for months. Apple announced on Friday that it would assist Foxconn in the investigation of what triggered the explosion.
Thomas Dinges, an analyst for iHS iSuppli, estimates that the Chengdu plant was handling about 20 percent of the total iPad supply, which could make the units even harder to get in the near future. If suspensions at the plant go on for more than a month, he says, it may create a shortage of up to 500,000 iPads, causing Apple to miss iSuppli's estimates of 7.4 million units shipped in this current quarter.
RBC Capital Markets technology analyst Mike Abramsky paints a darker picture, telling Bloomberg he believes Chengdu handled a higher percentage of iPad production, meaning a month-long closing of the polishing workshops could disrupt delivery to the tune of 2 million or more iPads. Sterne Agee analyst Shaw Wu thinks other analysts may be over-reacting, predicting that Apple will still sell around 6.8 million iPads during the quarter, which ends in June. Apple's stock has fallen slightly today, down 82 cents to $334.40. [via The Wall Street Journal and Bloomberg]