Blast at iPad plant reveals problems
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Workers at Foxconn assemble electronic parts at Foxconn,?a contract manufacturer for Apple products. |
An explosion at one of two factories that make Apple's iPad 2 highlights the risks of a global manufacturing strategy that has cut costs but concentrates production in a few locations.
Foxconn Technology Group, the contractor that makes Apple's iPhones and iPads, said last Friday's blast in the western Chinese city of Chengdu killed three employees and injured 15. The Taiwan-based company said production was suspended but did not respond to questions yesterday about how supplies of iPads might be affected.
Foxconn said the blast was caused by combustible dust in a workshop that polished products. It said operations in workshops that do similar work at its other factories on China's mainland would be suspended pending an investigation.
Estimates by industry analysts of the impact on iPad production ranged from minimal to up to 2.8 million units in lost output. That is equal to just over half the number sold in the first three months of this year but Apple says sales are so strong that it is already struggling to keep up with demand.
"There probably is going to be no impact" if production resumes as expected in the next few days, said Citigroup analyst Kevin Chang in Taipei. "If this safety inspection drags on for two or three weeks, there will be an impact on production."
Coming as global auto and electronics makers struggle with parts shortages caused by Japan's March 11 tsunami, the disaster emphasized the pitfalls for companies whose global sales depend on one or two factories.
"If you are trying to do as much as you can in one place to reduce the risks of an overextended supply chain, you are very dependent upon the safety of those one or two factories," said David Dayton, owner of Silk Road International Inc, which manages purchasing and manufacturing in China for foreign customers.
All Apple's iPads are produced at Foxconn factories in Chengdu and Shenzhen in south China, said Chang. But he said that is not overly concentrated in an industry in which a contractor with a single factory might supply a laptop computer sold worldwide.
Foxconn, a unit of Hon Hai Precision Industry Co, is a leader in a contract manufacturing industry that helps global electronics brands hold down costs.
Chinese factories produce 80 to 90 percent of the world's notebook computers and 50 to 60 percent of mobile phones.
Foxconn delivers savings for Apple, Hewlett-Packard Inc and other customers by operating on a vast scale. It employs an estimated 1.1 million people on the Chinese mainland in a half-dozen campuses the size of small cities.
The potential pitfalls of such a concentration were driven home when Japan's tsunami forced thousands of factories to shut down, abruptly cutting off supplies of key auto and electronics components. Factories as far away as Louisiana were forced to suspend production.
