Monday, May 23, 2011



Workers enter a Foxconn plant near Chengdu. An explosion in the company's Chengdu complex killed two workers Friday

Deadly explosion at iPad factory to hurt Apple earnings
Friday, May 20, 2011

Tablet computer

Two people are dead and 16 are injured following an explosion at a manufacturing facility in Chengdu, China owned by Foxconn Electronics, multiple sources reported on Friday.
The Taiwan-based company is a major manufacturing partner for Apple Inc. and the Chengdu location is where a number of the global gadget giant’s iPads are made, leading some observers to suggest Apple’s earnings for the next quarter will take a negative turn as a result.
It is unclear what proportion of the market-leading tablet’s global supply is built at the Chengdu location, as Foxconn’s plant in Shenzen is known to be an iPad-producer as well.
Local officials have already ruled out the possibility of foul play, saying the explosion “didn’t have a human factor.” The China-based Economic Observer newspaper was quoted by the AFP as saying the early evening explosion “appeared accidental” to eyewitness Foxconn employees.
Following the earthquake and tsunami that rocked Japan in March, killing thousands and decimating much of the country’s consumer electronics manufacturing capacity, Apple was one of only a handful of companies to say its supply chain was not affected.
Mike Abramsky, managing director of global technology equity research for RBC Capital Markets, envisions two potential scenarios for Apple’s as a result of the blast depending on how vital the Chengdu location is to iPad production. Neither is good, but one is better than the other.
In his first scenario, Chengdu is the primary iPad builder and Foxconn is unable to get production back underway until the end of June. That would equate to an iPad supply shortage of between 1.8 million and 2.8 million units for Apple’s third quarter and a loss of up to 9% on the company’s Q3 earnings per share (up to US$0.55 EPS), Mr. Abramsky said in a note to clients on Friday.
Apple Inc. building
In scenario number two, the majority of iPads are still made at Shenzen and production at Chengdu is able to get back underway within one month. Even if that more optimistic possibility is correct, Mr. Abramsky would still expect Apple to produce up to 1.4-million less iPads than previously expected, lowering Q3 EPS by as much as US$0.26.
“AAPL shares are down only 1% (US$2) today, which suggests investors may be pricing in the Less Serious scenario,” Mr. Abramsky said, warning Apple shares could decline further if the situation is eventually deemed more serious.
Foxconn, the world’s largest maker of computer components which in addition to Apple has relationships with Sony Corp. and Nokia Corp. has come under fire in the past over the extremely poor working conditions it provides its employees. At least 13 Foxconn employees died in apparent suicides in the last year, which many have linked to those conditions.
Apple officials did not immediately respond to a request for comment.

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