Apple Supplier Foxconn Shares Hit After Factory Brawl

Taiwan’s Foxconn, a major supplier forApple, saw its stock price fall almost three percent on Monday after news that it was forced to shut its factory in Northern China after a brawl between workers left 40 people injured.

Analysts told CNBC that the Hong-Kong listed shares were likely to stay under pressure until the full extent of the damage to the plant was clear.

The Foxconn factory in Shenzhen, Guangdong Province of China.
ChinaFotoPress | Getty Images
The Foxconn factory in Shenzhen, Guangdong Province of China.

“There are conflicting views on the extent of the damage and until we know, the stock could be under pressure,” Satish Lele, vice president at Frost and Sullivan Asia Pacific, which advises firms on technology, told CNBC.

According to Foxconn, a dispute between several employees on Sunday night at its manufacturing facility at Taiyuan in Shanxi province, China, escalated into a brawlinvolving 2,000 employees. Foxconn said that the dispute was brought under control and did not appear to be work-related.

Still, it is the latest in a string of incidents to hit Foxconn’s factories in China where it employs about 1 million workers. In June, about 100 workers went on a rampage at a Chengdu plant in southwestern China after alleged ill treatment by security guards at the plant.

Foxconn’s shares fell almost 3 percent in Hong Kong to HK$2.60, its lowest level in more than a week and underperformed the broader Hang Seng Index, which was down just 0.2 percent.

The shares of Hon Hai, Foxconn’s parent group, declined about 1 percent in Taipei, also underperforming the broader Taiwan market, which was up slightly.

Lele said Foxconn and iPhone maker Apple have been under pressure to improve working conditions for its employees in China and Foxconn’s shares could trade lower until investors have the full picture behind Sunday night’s incident.

“They (Foxconn and Apple) instituted a lot of audits in the past year to improve working conditions and I think this pressure will continue to grow. Until now, most of the contract manufacturers have been able to get away with its working conditions. Now with more exposure to media, it will be very difficult to maintain their image,” he said.

If there isn’t any damage to the plant’s equipment, Foxconn should be able to get back on track pretty quickly, Lele added.

The Taiyuan plant, which employs about 79,000 workers, makes parts for automotive electronics and assembles various electronic devices, according to Foxconn. A staff member at the Taiyuan plant told Reuters news agency that the plant makes parts and assembles Apple’s iPhone 5.

It was unclear on Monday when the plant, closed for police investigations, would be opened again.

Alberto Moel, senior research analyst with Sanford Bernstein in Hong Kong, said the decline in Foxconn shares could be down to concerns over a disruption in Apple’s supply chain. Apple on Friday started shipping its iPhone 5 and any disruption at Foxconn’s Chinese plants could hurt Apple as well as Foxconn.

The iPhone is Apple's highest-margin product and it accounts for half of the company's annual revenue, while Hon Hai derives 50 percent of its revenue from Apple, according to Yuanta Securities.

“Unless there’s a disruption to Apple supply chain, there’s not going to be any impact,” Sanford Bernstein's Moel said. “Of course, since we don't know what the level of damage may be, I would expect investors to assume the worst, shoot first and ask questions later.”

Vincent Chen, analyst with Yuanta Securities in Taipei, however downplayed the concerns.

“Hon Hai is experienced in dealing with such stuff. You can probably say it’s a knee-jerk reaction,” Chen said, referring to the stock’s decline. “It does appear that it’s not iPhone-related, so there won’t be any impact.”

By CNBC’s Jean Chua.