Sterne Agee: Concerns Over iPad Production “Overdone”

Concerns that the explosion in a Foxconn factory in China will have a material impact on production of the hot iPad 2 are “overdone,” according to Sterne Agee analyst Shaw Wu. In a research note obtained by The Mac Observer, Mr. Wu told clients on Monday that production of the device is already being ramped up at at other factories owned by the manufacturing giant.

The explosion occurred on Friday in a factory in the city of Chengdu, killing two and injuring 16 others. Another Foxconn worker has since died, bringing the death toll for the tragic accident to three. Since then, it has been revealed that the explosion may have been caused by combustible dust in a ventilation system.

“We find this development unfortunate but believe concerns that it will materially impact iPad production are overdone,” Mr. Wu wrote in his update Monday. “From our checks with industry and supply chain sources, there are at least two facilities that produce iPads (the other being Shenzhen) with plans to add more. Our sources indicate that production is being ramped at Shenzhen to make up for a potential shortfall at its Chengdu plant.”

On Friday, Mr. Wu had raised his Q3 estimates for iPad production from 5.9 million iPads to 6.8 million units (iPhone and Mac estimates were raised, as well). In today’s update, he said that he “remained comfortable” with those increased estimaes.

“As we mentioned recently,” he wrote, “production constraints that [have had an impact on] iPad shipments last quarter have significantly improved with better yields and higher output due to successful retooling and conversion of more production lines to iPad 2.”

The analyst maintained his “Buy” rating and his US$460 price target for AAPL.

Shares in Apple opened lower on Monday, but have steadily increased throughout the trading session. As of this writing, AAPL was trading at $335.34, up $0.120 (+0.04%), on strong volume.

Marketwatch reported that shares in Foxconn, which trades in the Hong Kong markets, shed 2.9% of their value on Monday. Similarly, Foxconn’s parent company, Hon Hai Precision, dropped 2.61% in Taiwan.

*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.