Explosion at Apple Supplier Foxconn Kills Two
A Foxconn plant near Chengdu explodes leaving two dead and several injured
.A large explosion rocked a Foxconn plant in Southwestern China Friday, killing at least two people and injuring at least 16. Thick black smoke could be seen billowing out of the building, which manufactures Apple's iPad 2 tablet computers. Foxconn officials said the situation is now under control, reports The Wall Street Journal, but the cause of the explosion is still unknown.
"We are working with medical officials to provide treatment to the injured employees and we are working with government and law enforcement officials to contact the families of all employees affected by this tragedy," Foxconn said in a statement. In video footage taken after the explosion, which happened around 7 p.m. there, a chaotic scene unfolds as workers wearing surgical masks flee the perimeter of the building (video courtesy of Sohu)
Herman Lai at M.I.C. Gadget was early to report the incident. His sources say the Chinese investigators are ruling out the possibility of human error in the explosion. The incident is likely to bring renewed criticism of the Apple manufacturer, which has come under fire for the seventeen suicides that have occurred at the plant. In February, Wired magazine published an exposé of Foxconn, describing the nets surrounding the plant intended to catch employees intending to jump to their deaths. While the article found the work meticulous and robotic, it largely defended the manufacturer, noting that seventeen suicides for a company that hires 1 million workers isn't that high. By comparison, the suicide rate for American college students is four times that.
In the tech press, a number of bloggers expressed concern about the possibility of further delays on Apple's popular iPad 2 tablets. "The explosion has for sure halted production in the iPad 2 assembly line, which may affect deliveries right away since the stock of Apple's popular tablet is non-existent--all the iPad 2 get sold straight from the factory," wrote Jesus Diaz at Gizmodo.
Update: According to reports, the cause of the explosion was light dust igniting in one of the manufacturing rooms. TechCrunch's John Biggs expands on how such an explosion can occur:
Any aerated, flammable substance can potentially explode given the right mix of heat and propellant. The resulting explosions, especially in a factory that is probably producing clouds of aluminium and plastic dust on a daily basis, could be quite dangerous.
Update: Fortune's Philip Elmer-DeWitt speaks with an analyst who offers two scenarios of what this means for Apple. The important thing to remember is Apple has two supplier where iPads are made. One in Chengdu, the factory affected, and another in Sehnzhen. What no one knows is which plant makes most of the iPads. Under a doomsday scenario, most of Apple's iPads are made in Chengdu and the explosion is serious, in which case:
Apple is unable to utilize alternatives or get back on stream by June. If so, it could be negative for Apple's Q3 (June); stoppage of Chengdu until end June may equate to the lost production of 1.8-2.8M units Q3, which is 22-36% of our expectations for 8M iPad shipments Q3. If Foxconn is unable to pick up the slack by June, it could also cause production shortages for Q4/F11 (end Sept). Under this scenario, Q3 revenue may be impacted by $1.1-1.7B (4-7%) and EPS $0.35-0.55 (6-9%), which at current valuation represents $5-7 downside to shares.
Alternatively, it may not be so bad:
Under this scenario, either Shenzhen still makes most iPads and is unaffected, and/or Foxconn is able to re-start iPad production quickly at Chengdu. Estimating a 1 month production impact, would perhaps equate to <1.3M units Q3 with limited impact to Q4. Under this scenario, revenue would be impacted by <$800M (<3%) and EPS <$0.26 (<4%) which at current valuation represents less than $3 downside to shares.