iPad Production Hit By Foxconn Disaster, Analysts Say

The recent explosion at a Chinese manufacturing plant owned by Foxconn could disrupt Apple iPad 2 production to the tune of 350,000 to 400,000 units, according to a new report by market research consultancy Displaybank.

A May 24 research note from the firm cites damage to the facility’s A05 plant, which produces the iPad 2’s back cover, as a cause behind the disruption. “Given existing back cover production capacity, the total production disruption will be approximately 550,000-700,000 units,” wrote Ricky Park, senior analyst at Displaybank, “but since current inventory is about 200,000-300,000 units, actual production disruption will be about 350,000-400,000 units.”

Deaths Sully iPad’s Image

The May 20 explosion at the plant, based in the southern Chinese city of Chengdu, killed three workers and injured 15 others. Early reports cited combustible dust in a polishing workshop as the cause. Almost immediately, analysts focused on the accident’s potential to affect production of Apple’s bestselling mobile products, in particular the iPad.

The degree of impact, however, is a matter of dispute by those outside groups.

“Our current view is that this tragedy is likely to have some impact on iPad 2 production; however, we believe Hon Hal has the flexibility to shift manufacturing back to the Shenzhen facility if necessary,” Brian White, an analyst with Ticonderoga Securities, wrote in a May 23 research note sent to media. “As such, we currently don’t expect a material impact to Apple’s iPad 2 shipments.”

At the moment, shipping time for a new iPad ordered from Apple’s Website is one to two weeks.

Apple has faced some Foxconn-related issues in the past. In 2010, it launched a high-level investigation into 12 suicide attempts that took place at the Foxconn facility throughout the first half of that year, complete with Apple COO Tim Cook visiting the facility that June. Apple also claimed it commissioned an independent team of suicide-prevention experts to survey Foxconn workers about their quality of life.

Throughout 2010, Apple completed first-time audits of 97 suppliers and repeat audits of another 30, for an apparent total of 288 supplier facilities audited since 2007. Much of the company’s regular probing seems focused on weeding out underage workers, protecting the rights of migrant workers, and mapping the use of potential conflict minerals such as tantalum and tungsten. At the same time, however, the company also cites improperly maintained machines and violated engineering controls.

Apple’s mobile devices helped buoy the company’s revenues to $24.67 billion for the fiscal 2011 second quarter, with a net profit of $5.99 billion. Apple sold 4.7 million iPads during the quarter, which saw the release of the iPad 2. Though Apple commands the lion’s share of the tablet market and continues to maintain a healthy presence in smartphones, it finds itself increasingly challenged by a variety of rivals pushing devices loaded with Google Android.