Analyst: Foxconn plant explosion to disrupt iPad 2 production

But temporary problems at Chinese facilities unlikely to affect Apple's bottom line

The explosion at a Chinese factory last week will affect production of Apple's iPad 2, but won't affect Apple's bottom line, a Wall Street analyst said today.

"It will definitely impact production, but this isn't something that will be material to Apple's earnings," said Brian White, an analyst with Ticonderoga Securities.

White, who supplied a research note to clients earlier Monday about the explosion and fire at a Hon Hai Precision Industry Co.-owned plant in Chengdu, China, said that iPad 2 manufacturing can probably be shifted elsewhere.

Taiwan-based Hon Hai, better known by its trade name of Foxconn, has shuttered not only the Chengdu facility, but the electronics polishing lines at all facilities to conduct investigations, according to the Wall Street Journal.

Hon Hai made the move after an explosion last Friday at the Chengdu plant killed three and injured 15.

Foxconn produces products for some of the world's biggest names in technology, including Apple and Hewlett-Packard.

White echoed the take of most other analysts, who said that disruptions in iPad 2 manufacturing would be temporary, and likely solved by workarounds.

"If this was the only plant where Hon Hai assembles iPads, it would be different," said White. "But they have still more production at Chengdu, as well as the Shenzhen facility. If all they need is an incremental capacity, this will not be something that materially affects Apple."

According to White's sources, although iPad 2 production was being shifted from Shenzhen to Chengdu in western China before the explosion, the former remains the primary location for Apple's tablet manufacturing.

Taiwan-based DigiTimes reported today that the affected plant produced between 25% and 30% of the iPad 2s shipped last month.

Apple has been unable to match iPad 2 supply with demand since it launched the tablet refresh in early March. Currently there is a one-to-two week delay between ordering an iPad 2 on Apple's online store and when the tablet is shipped to the customer.

While some reports had pegged that delay at a shorter three to five days just prior to the Friday explosion and fire, White didn't see the longer interval as an indication that Apple believes supplies will be even tighter.

"It may be a 'just in case' move on their part," said White. "If so, it's the smart thing to do."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed. His e-mail address is gkeizer@computerworld.com.

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Gregg Keizer

Computerworld (US)

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