Analysts Split on iPad Shortage Following Foxconn Tragedy

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The May 20 explosion at Foxconn’s Chengdu factory that killed three workers and injured at least 16 others, immediately halting the plant’s production line, and also caused the Hon Hai Precsion Industry Co. to shut down its electronic part polishing plants in China, may or may not delay iPad shipments, according to analysts.

Foxconn is a subsidiary of the Taiwan-based Hon Hai, which provides parts for Apple, Sony, HP and others. Its Foxconn Technology Group is Apple’s main manufacturing contractor.

Early reports of the explosion indicated that iPad shipments — already strained from a March earthquake and tsunami in Japan — would be affected by the stoppage and subsequent investigation. It is believed the Foxconn explosion was caused by a buildup of combustible dust.

However, analysts are skeptical the explosion and Hon Hai shutdown will affect shipments. In a note released Monday, Barclays Capital Analyst Kirk Yang claimed, “Even in a worst-case scenario in which there are significant iPad 2 production disruptions in Chengdu in terms of either metal casing component shortages or assembly line shutdown, we expect Hon Hai’s original facilities in Shenzhen could quickly make up some of the shortfall from Chengdu by ramping up the idle capacity.” Yang claimed a shutdown of more than two to three months could affect shipments.

Also, analysts have noted that Hon Hai has extremely efficient operations and is able to handle manufacturing shutdowns. It is the largest electronics contractor by revenue in the world, according to the Wall Street Journal.

The China Times also reports that iPad 2 shipments will not be delayed or affected.

However, JPMorgan’s Gokul Harharan disagrees. The analyst claims, “The supply of iPad 2 has been running tight due to manufacturing yield issues and component shortages. This is likely to accentuate (the iPad) shortage in the near term, at least in the second quarter.”

As of May 23, shipping time for all Apple iPad 2 units is listed as 1-2 weeks on the Apple Store online, though it was as long as 5-6 weeks in recent weeks since launching in March.



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