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Factory Explosion Could Further Tighten iPad Supplies

El Segundo, Calif. – The explosion at Foxconn’s Chengdu plant in China could exacerbate the back-order situation of Apple’s iPad 2, IHS iSuppli said.

Total iPad 2 production capacity at the Chengdu site comes to about 500,000 units per month, and if the explosion shuts down production until the end of June, a production stoppage of half a million units could result, iSuppli said. If the shutdown lasts longer, the supply situation will get even worse, iSuppli said.

Although most iPad 2 production takes place at another Foxconn facility in Shenzhen, that plant might not be able to compensate for all of the Chengdu site’s lost second-quarter output, iSuppli continued. The Shenzhen facility has the capacity to produce 7.5 million units in the second quarter, and iSuppli forecasts 7.4 million iPad 2 units were to be shipped during this period. To support these shipments, Foxconn must manufacture a larger quantity of iPads — or between 7.8 and 8.1 million units — during the second quarter. As a result, Foxconn’s shipments will fall short of expected levels by between 300,000 and 600,000 units in the second quarter, iSuppli contends.

Although one Wall Street analyst predicted that the explosion could cause iPad 2 production to fall by as much as 2.8 million units, IHS iSuppli said it is not so pessimistic. “The impact of this 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,” iSuppli 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.” In addition, the shortage of raw components resulting from the Japanese earthquake “already had slowed down the production ramp at the Chengdu plant,” iSuppli said.