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“Apple Inc.’s iPhone 5 supply shortfall is being exacerbated by a quality-control crackdown at Foxconn Technology Group that’s designed to cut the number of devices shipped with nicks and scratches, according to a person familiar with the matter,” Tim Culpan, Alexandra Ho, and Adam Satariano report for Bloomberg.

“The scrapes, which sparked complaints with the iPhone’s debut last month, are due to Apple’s decision to use a type of aluminum that helps make the smartphone thinner and lighter,” Culpan, Ho, and Satariano report. “Senior Apple managers told executives at Foxconn near the end of September to tighten production standards, said the person, who asked not to be named because the matter was private.”

Culpan, Ho, and Satariano report, “Stricter benchmarks have hampered production of the iPhone 5′s anodized aluminum housings, forcing Foxconn’s Hon Hai Precision Industry Co. (2317) to idle factories, the person said. The slowdown is heightening supply concerns that have cost Apple about $60 billion in market value since the iPhone debut — a shortcoming of the drive to imbue products with qualities that make them alluring yet more difficult to manufacture. ‘The iPhone 5 is not easy to put together because it’s a minimalist design,” said Shaw Wu, an analyst at Sterne, Agee & Leach Inc. “Apple has a very high standard, where it aims to produce each model to be an exact replica where variance is measured in microns.’”

“While Apple sold a record 5 million iPhone 5s the first weekend the device was on sale, the tally would have been higher if not for supply constraints, the company said. Apple shares have declined 9.4 percent since a record close on Sept. 19, two days before the new iPhone went on sale. Apple fell less than 1 percent to $635.85 at the close in New York,” Culpan, Ho, and Satariano report. “‘It’s a trade-off because aluminum is strong and tougher to break, and it’s light and more economical, yet it is also easier to scratch,’ said Jacob Huang, a professor of materials engineering at National Sun Yat-Sen University in Kaohsiung, Taiwan. ‘You could use magnesium, which is lighter, but even softer and easier to scratch, or glass which is heavier but harder yet more brittle.’”

MacDailyNews Take: Or you could use Liquidmetal, if you could ever figure out how to do so at an acceptable cost.

Culpan, Ho, and Satariano report, “While the stricter requirements and assembly disruptions affect output, Foxconn and Apple are well-experienced in dealing with such challenges, said Jeff Pu, a Taipei-based analyst at Fubon Financial Holding Co. ‘These stricter standards would lower the yield on good products being shipped out,’ Pu said. ‘They’ll handle it by increasing labor and machinery, and Apple may even use its cash to buy new equipment to assist Foxconn.’”

Read more in the full article here.

Related articles:
Foxconn Labor disputes said to disrupt iPhone production for 2nd time – October 9, 2012
Foxconn denies plant strike report; Apple shares down with many U.S. stocks – October 8, 2012
Foxconn: No strike at China iPhone plant; production remains on schedule – October 6, 2012

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