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Foxconn Explains Cause Of iPhone 5 Shortages That Are Hammering Apple’s Stock

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A Foxconn executive has acknowledged that the company is having trouble making enough iPhone 5s--creating a supply problem that has contributed to Apple's (AAPL) falling stock price and led to analysts cutting their estimates for the company's December quarter.

The Wall Street Journal's Lorraine Luk quotes an official at the company as saying the following:

"The iPhone 5 is the most difficult device that Foxconn has ever assembled. To make it light and thin, the design is very complicated," said an official at the company who declined to be named. "It takes time to learn how to make this new device. Practice makes perfect. Our productivity has been improving day by day."

The executive said Hon Hai has taken steps to improve its productivity and address scratches on the metal casings of some new iPhones that were shipped. Hon Hai has recently implemented a new quality check procedure to reduce the chance of damages. But he noted the iPhone 5 uses a new coating material that makes it more susceptible to scratching.

"It's always hard to satisfy both aesthetic needs and practical needs," said the executive.

The tendency of the iPhone 5 to scratch easily contributed to the Foxconn worker disputes that were initially characterized as a "strike" by China Labor Watch a couple of weeks ago. And this tendency has also led to what is perhaps the most common complaint about the iPhone 5. (In the accompanying video, The Daily Ticker's Aaron Task and I discuss reports of the latest labor disputes.)

Wall Street initially expected Apple to sell more than 50 million iPhones in the December quarter. This seemed a very achievable jump from last year's 37 million. But in the wake of reports of supply problems, analysts have been cutting their estimates.

The good news for Apple shareholders is that most of the sales will likely be pushed out rather than lost. Having waited this long to buy iPhone 5s, most prospective customers will probably wait a little longer. The supply problems are likely causing some lost sales, however, given the instant availability of Samsung's Galaxy S3 and the cheaper iPhone 4 and 4S.

See Also: You Need To Understand What It's Like To Work On An iPhone 5 Assembly Line

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