Foxconn Faces Limited Impact From Chengdu Fire, Analysts Say

May 22, 2011, 8:40 PM EDT By Chinmei Sung

(Updates with reference to suicides in fourth paragraph.)

May 23 (Bloomberg) -- Foxconn Technology Group, maker of Apple Inc.’s iPhones and iPads, should have limited impact from an explosion at the Chengdu plant in southwest China’s Sichuan province, as the base isn’t a main site, analysts said.

Foxconn makes most of the iPhones and iPads at its base in Shenzhen, Guangdong province, Vincent Chen, head of Greater China technology research at Yuanta Securities Co., and Macquarie Group Ltd. analyst Daniel Chang said by phone from Taipei on May 21.

“The Chengdu plant is primarily for computer assembly and the iPad assembly is being pilot run,” Chen said. “Foxconn is a very professional manufacturer and is very experienced in making adjustment in times of crisis, and the impact should be very minimal.”

Terry Gou, chairman of Taiwan-based Foxconn, has been shifting production to Chengdu and other interior cities in China such as Wuhan and Chongqing, where labor is about a third cheaper than in the country’s south. The electronics maker has raised wages for workers in Shenzhen after a spate of employee suicides last year.

Three people were killed and 15 injured in the blast that occurred at about 7 p.m. local time on May 20. Of the injured, six were treated at a local hospital and released, the company said in an e-mail. The fire triggered by the blast was later extinguished, Edmund Ding, a company spokesman, said by phone. He declined to say what products the factory makes or estimate any financial loss related to the accident. Initial findings show the accident was caused by an explosion of combustible dust within a duct at the facility, the statement said.

Opened in October

The $2 billion laptop plant where the explosion took place opened in October, Xinhua reported May 20.

Hon Hai Precision Industry Co., the flagship of the Foxconn Group, fell 1 percent to NT$103 at the close of May 20 in Taipei trading before the incident. Apple Inc. dropped 1.6 percent in New York on May 20.

The affected plant makes Apple’s iPad 2 tablet computers, the Economic Observer said on its website on May 20, citing unidentified company workers. Gou flew to Chengdu, the Beijing- based newspaper said, citing unidentified company employees.

Production has been suspended at the site of the explosion until the completion of an investigation, Foxconn said in an e- mailed statement May 21.

The stoppage shouldn’t cause any production disruption, Macquarie’s Chang said, as iPads and iPhones are mostly made in Shenzhen.

“We are working closely with Foxconn at this point to understand what caused this terrible event,” Steve Dowling, a spokesman for Cupertino, California-based Apple, said in a phone interview. “We are deeply saddened by the tragedy.”

Dowling declined to comment on any possible supply disruptions, referring questions to Foxconn.

Police in Chengdu said they concluded preliminarily that the explosion, in a polishing workshop, wasn’t intentionally caused, China News Service said.

--Editors: Jim McDonald, Keith Gosman

To contact the reporter on this story: Chinmei Sung in Taipei at csung4@bloomberg.net.

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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