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Apple copes with low iPhone 5 supply, brawl at Chinese supplier

Demand for Apple's iPhone 5 exceeds supply, causing store shortages, and a brawl at a major supplier again raises questions about working conditions in China.

September 25, 2012|By Andrea Chang and Julie Makinen, Los Angeles Times

What was supposed to have been a blockbuster weekend for Apple Inc. was instead marred by lower-than-expected sales for the iPhone 5 and a brawl at a major supplier that again raised questions about working conditions in China.

Apple sold more than 5 million iPhone 5s through the weekend, a company record. But analysts had been expecting the technology giant to sell as many as 10 million units of its latest smartphone during its first three days of sales.

That disappointment caused Apple shares — which had been on a sharp upswing in the weeks leading up to the iPhone 5's release — to fall $9.30, or 1.3%, to $690.79 on Monday.

One reason for the less-than-anticipated sales may have had to do with demand for the iPhone 5 greatly outstripping supply, leading to shortages at Apple stores and retail partners around the country within a few hours of the phone's release Friday. In Southern California, there were still lines out the door Sunday at Apple stores at the Grove in L.A.'s Fairfax district, Westfield Century City and Westfield Fashion Square in Sherman Oaks.

"While our weekend checks suggested very robust demand, we witnessed very limited supply," Barclays analyst Ben A. Reitzes said. "First, nearly all the retail stores and carriers we canvassed reported no inventory. We believe initial shipments were very limited — with some non-Apple stores receiving below 20 iPhone 5s."

Apple Chief Executive Tim Cook said Monday that the company was "working hard to get an iPhone 5 into the hands of every customer who wants one as quickly as possible."

"While we have sold out of our initial supply, stores continue to receive iPhone 5 shipments regularly and customers can continue to order online and receive an estimated delivery date," he said. "We appreciate everyone's patience and are working hard to build enough iPhone 5s for everyone."

Analysts said although Apple fell short of sky-high estimates, they still expected that the iPhone 5 would sell extremely well during the holiday quarter.

Last year, Apple sold 4 million iPhone 4S smartphones during that device's first weekend on store shelves.

Besides dwindling or nonexistent iPhone 5 supplies, Apple had another problem over the weekend.

A brawl involving about 2,000 workers broke out Sunday night at a dormitory that houses Foxconn employees in China's Shanxi province. Foxconn is Apple's largest supplier and makes iPhones, iPads and other Apple devices at massive facilities that resemble small cities.

Forty people were taken to hospitals for medical attention and "a number" of individuals were arrested, Foxconn Technology Group said in a statement.

The company — also a supplier to other electronics giants including Dell Inc., Microsoft Corp. and Amazon.com Inc. — temporarily stopped production at the facility in Taiyuan.

It was unclear if the facility where the fight broke out is involved in iPhone 5 production. Foxconn has been criticized after reports of dangerous working conditions and suicides.

Shaw Wu, a Sterne Agee analyst who recently met with Apple suppliers in Taiwan, said Apple had already been looking to redistribute its reliance on certain suppliers.

"Regardless of what happens with Foxconn, they were looking to diversify," Wu said. "It doesn't make sense to put all your eggs in one basket. They were on that path anyway. Not sure if this accelerates it or not, but these types of situations are never pleasant."

Photos posted on China's Weibo microblogging site purporting to be of the incident showed scores of police on the scene, broken windows in a building and overturned vehicles. Videos captured workers running in the night and police using megaphones to urge crowds to disperse.

Foxconn said a "personal dispute" between employees from its Taiyuan facility "escalated" at the privately managed dormitory and police brought the situation under control by 3 a.m. Monday. The company said it was assisting local authorities in their investigation but that the incident appeared "not to have been work-related."

Postings on Weibo indicated that the fight began when a guard beat up a worker and made disparaging comments about people from Henan province.

Foxconn said its facility in Taiyuan employs 79,000 people and manufactures automobile electronic components, consumer electronic components and precision moldings. Workers at the Taiyuan facility went on strike in March over pay issues.

Cupertino, Calif.-based Apple has been working with a labor group in recent months to help improve worker conditions at Foxconn. As part of those efforts, the supplier has pledged to increase employee pay, reduce hours, enforce breaks and update maintenance policies.

A manager at the facility contacted by phone refused to answer questions about the brawl. Apple did not return a call for comment.

andrea.chang@latimes.com

julie.makinen@latimes.com

Chang reported from Los Angeles; Makinen reported from Beijing.

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