Mike Abramsky, an analyst with RBC Capital, predicted that iPad 2 production could fall by as much as 2.8 million units and manufacturing could drop by 36 percent in the third quarter following the Chengdu explosion.
IHS said its analysts believe this outlook is too pessimistic. The impact of the disaster will only last for the short term, given that there are more than 10 factories in the Foxconn Chengdu plant, and because the explosion occurred on the third floor of one of the buildings, IHS said. Chengdu just recently commenced production of the iPad 2 at the start of 2011, with the plant recently accounting for approximately 20 percent production of the iPad series, according to IHS.
A shortage of raw components related to the March 11 earthquake in Japan had already slowed down the production ramp at the Chengdu plant, IHS said.
IHS also predicted that the impact of the explosion would reignite a debate about Apple's corporate responsibility. Apple took some heat last year when 13 employees at Foxconn's Longhua, China, campus committed or attempted suicide.
IHS said Apple as a global company is accountable to all stakeholders for the conduct of its business, and the proper balance of safeguards and regulation will be debated because of the multiplicity of opinions on the topic. In the end, Apple will have to drive a level of corporate responsibility that is acceptable to its stakeholders, according to IHS.
Until more information is available about the cause of the explosion and deaths of three Foxconn employees, its unclear how this disaster will impact the relationship between Apple and Foxconn, IHS said. Apple is the final authority for all decisions regarding production, component suppliers and other aspects of production and, from a process and quality point of view, must have deemed the Chengdu facility acceptable, IHS said.
Apple issued a statement that read, in part: "We are saddened and upset by the recent suicides at Foxconn. Apple is deeply committed to ensuring that conditions throughout our supply chain are safe and workers are treated with respect and dignity."
Apple said it was in direct contact with Foxconn management and believes they are taking the matter very seriously. The company also said it is independently investigating steps Foxconn is taking to respond to the deaths.
While Foxconn has demonstrated the capability to quickly ramp up manufacturing and is likely already taking steps to compensate for the disaster, this incident will increase pressure on Foxconn and its customers to address workplace safety, IHS said.
Not to sound like a union symphatizer but this is a tragic consequence of world ecomony. America is moving jobs overseas where lack of environmental regulation and worker safety is prevalent. Loss of human life is the price of that consequence.
Apple should ensure worker safety at contract manufacturers for their own benefit. With the razor thin margins Foxconn make, they may not be motivated much to spend on safety.
Apple, even before the explosion couldn't meet the demand of iPad2. At the place where I live, its sold out in most of the shops.
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