Last week's explosion at a Chinese factory where the Apple iPad is manufactured will not cause a delay in production to the popular device, analysts say.
The explosion occurred on Friday night at Hon Hai's Foxconn factory in Chengdu China, killing three and injuring 15. The accident was likely caused by combustible aluminum dust, located in the part of the factory where the iPad is polished to make it look shiny.
While the explosion and the subsequent shutting down of polishing plants will cause some delay, analysts say it won't affect the company's bottom line. Our current view is that this tragedy is likely to have some impact on iPad 2 production; however, we believe [Foxconn] has the flexibility to shift manufacturing back to the Shenzhen facility if necessary, Ticonderoga analyst Brian White said in a note to investors. As such, we currently don't expect a material impact to Apple's iPad 2 shipments.
Shaw Wu, analyst at Stern Agee, expressed a similar sentiment in a note to investors. From our checks with industry and supply chain sources, there are at least two facilities that produce iPads (the other being Shenzhen) with plans to add more. Our sources indicate that production is being ramped at Shenzhen to make up for a potential shortfall at its Chengdu plant, Wu said.
However, DigiTimes, a tech research firm based in Taiwan, has published data that paints a less rosy picture. DigiTimes said even though the Chengdu plant only recently opened up iPad 2 production lines, 25-30 percent of iPad 2 devices shipped in April came from there. The research firm also said Foxconn had set a goal of shipping out 3-4 million iPad 2 units in the second quarter, up from about 600,000 in the first. It also said Foxconn was looking to slow down production in its Shenzhen plant.
Meanwhile, Foxconn will have to deal with questions regarding the safety of its plant. Hong Kong advocacy group Students and Scholars Against Corporate Misbehaviour (SACOM) criticized the manufacturer for extreme negligence regarding the safety of its workers. The group published a report in early May about the Chengdu factory and its lack of safety procedures.
The tragedy happened in the polishing department of Foxconn and involved an explosion of ultra-light dust. Workers complained to SACOM that the ventilation of department is poor. Workers polish the iPad cases to make them shiny. In the process, there is lots of aluminum dust floating in the air. Workers always breathe in aluminum dust even though they put on masks. When workers take off their cotton gloves, their hands are covered with aluminum dust. Regardless of the explosion, this is detrimental to the health of workers, SACOM said in a recent blog post. Aluminum dust is flammable under certain conditions and can explode at sufficiently high concentrations.
The advocacy group said the Chengdu factory was built too fast, and the ongoing construction has been hazardous to employees. According to SACOM, construction and production take place side by side, leaving the workers exposed to numerous hazards including dust residue and dangerous materials.
Other than confirming a third death and the cause of the accident from combustible dust, Foxconn has said little about the accident. The company did say it is cooperating fully with all relevant government bodies to carry out a full investigation into the cause. Apple has said little other than expressing condolences and saying it is investigating the accident.