Why Aren't There Enough iPads to Go Around?

Well, that was quick.

It's been just five days since Apple (Nasdaq: AAPL  ) took the wraps off of the new iPad last week, and the Mac maker has already officially sold out of pre-orders for the new device. The company said in a statement, "Customer response to the new iPad has been off the charts," but it opted not to break out any juicy figures.

New orders placed through Apple now quote domestic shipping times as high as two to three weeks for all models, although the company always reserves an allotment for retail walk-ins on launch day, which also promises to deliver the long lines and media spectacles that typify Apple product launches.

There are a few potential culprits for iPad supply shortages, including the fact that the tablet is seeing an aggressive global rollout on launch day that spans the United States, Canada, Japan, and much of Europe, among others. An additional 25 countries make the list a week after that, so Apple needs to reserve some units for every country.

The likelier cause is that the device's biggest selling point, the new Retina Display, is causing production bottlenecks and limiting supply as panel suppliers have difficulties ramping up yields. According to NPD Group's DisplaySearch, Apple is tapping three separate display suppliers: Samsung, LG Display (NYSE: LPL  ) , and Sharp. DisplaySearch analyst Richard Shim says the high-resolution panel is presenting manufacturing challenges.

It's unlikely that any of the other components, like the world-mode baseband chip (or similar variant) from Qualcomm (Nasdaq: QCOM  ) that's probably inside, would see the same types of shortages, while the new iPad's display is the first panel with such high pixel density to be manufactured on such a large scale. Apple explained that to pack in that many pixels, it needed to elevate the pixels to separate them from the electrical signals so as to avoid "cross-talk."

What we're probably looking at here refers to a technique that Cupertino did not invent, called Super High Aperture, or SHA. It involves applying a 3-micron-thick acrylic resin layer, and Sharp and JSR developed it years ago, but it was slow to take off because of its complexity, costs, and low yields.

You can probably expect to see some Google (Nasdaq: GOOG  ) Android devices coming out soon with such displays, since Samsung and LG Electronics, the parent of LG Display, are rather prolific Android OEMs themselves.

Meanwhile, longtime Apple analyst Gene Munster of Piper Jaffray expects Cupertino to sell 9 million iPads this quarter. The shortages also create opportunities for ambitious scalpers looking to capitalize on excess demand, while iPad scarcity will only make buyers want it even more. For now, there just aren't enough new iPads to go around.

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Fool contributor Evan Niu has sold bullish put spreads on Qualcomm and owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple, Google, and Qualcomm. Motley Fool newsletter services have recommended buying shares of Apple and Google and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (15) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 12, 2012, at 9:33 PM, EquityBull wrote:

    It's hilarious that apple still sells for under market multiple. People already camping out for new ipad at the stores and it's only monday. Talk about clueless traders and fund managers.

  • Report this Comment On March 12, 2012, at 9:38 PM, DPW824804 wrote:

    Evan

    Quite a jump to conclude a problem with the retina display. To get the initial supply, over 2 million new iPads have already been produced. If there was a severe production problem or bottleneck due to one or a few specific issues, it would have either been solved or would have resulted in a delay in product launch. You assume problems in production and Apple launched anyway. Given Cooks background in supply chain, as well as Apples past successes in massive product launches, this seems unlikely.

  • Report this Comment On March 12, 2012, at 9:49 PM, berylrb wrote:

    more likely, that the statistical model didn't account for some category of users. I personally wonder where in the equations the corporate/enterprise purchases are counted? What if a large corp said, shoot, forget the iPad 2, let's just ante up for the iPad new?

  • Report this Comment On March 12, 2012, at 9:55 PM, TMFNewCow wrote:

    DPW,

    This is of course supply chain speculation, but you also act as if Apple has never had supply shortages coupled with unmet demand. Certain things are out of Apple's control, and I've already attributed Apple's supply chain mastery to Cook previously:

    http://www.fool.com/investing/general/2011/11/08/how-apple-h...

    The third-gen iPad may have begun production as early as October:

    http://www.fool.com/investing/general/2011/10/14/is-the-ipad...

    Having sufficient supply to launch a product doesn't necessarily mean that Apple can keep up with ongoing global demand, which is all I'm implying here.

    As soon as you acknowledge that Apple is susceptible to shortages like any other company on Earth, even with its unparalleled supply chain, then you have to consider what could lead to said shortages.

    In this case, the evidence points to the Retina Display as the only component that could be the holdup considering it's the first of its kind on such a large scale, while other components (like the 5-megapixel image sensor, LTE baseband modem, presumably 45-nanometer A5X custom processor, etc.) have more established manufacturing history and thus would unlikely be the culprit.

    Foolishly,

    -- Evan

  • Report this Comment On March 12, 2012, at 10:03 PM, xmmj wrote:

    "The likelier cause is that the device's biggest selling point, the new Retina Display, is causing production bottlenecks and limiting supply as panel suppliers have difficulties ramping up yields."

    While this may be "likelier" it is not necessarily so.

    Personally, I don't think Apple would have selected a display that they did not believe would make production targets.

    An even likelier explanation (IMHO) is that Apple prepared for huge demand, but the real demand has even surpassed that. So I think an opening weekend of 2 or possible 3 Million units is possible. We will find out soon enough.

  • Report this Comment On March 12, 2012, at 10:08 PM, ToddKaime wrote:

    Almost every Apple launch has someone saying its unsustainable. Last year it was Japan's tsunami that wiped out production or supply. Of course, we wouldn't be having the clicks on these "news" articles if all we said were "everything's peachy, nothing to see here." And, furthermore, if we don't have those clicks how could we promote our book?

  • Report this Comment On March 12, 2012, at 11:25 PM, DPW824804 wrote:

    XMMJ

    I agree with your conclusion. Some supply and demand imbalance provides marketing benefit but in the end you need to have production capacity meet actual ongoing demand.

    There is also the issue of the cost to have significant Immediate capacity to meet the initial spike in demand but that demand will diminish. You do not build production capacity for a short term demand spike. Think of it as the cost to manage a 500 year flood. Assuming there is not a competitor to fill the void, allow for the initial imbalance and methodically bring supply and demand into parity.

  • Report this Comment On March 12, 2012, at 11:28 PM, jdwelch62 wrote:

    Well, whatever the pluses are for Apple, it's probably not a fun time to be a Foxconn employee...

    Makes sense that the new display would be the bottleneck. It seems the most likely weak link in the supply chain...

    Thanks, Evan...

  • Report this Comment On March 12, 2012, at 11:33 PM, jdwelch62 wrote:

    @ToddKaine: I don't think Evan said that the supply of new iPads would be "unsustainable". He's just pointing out that 1) there's a delay in shipping (what they already have and expect to have soon, presumably), and 2) what the likely choke point in the supply chain might be, and why...

    BTW, as soon as someone quotes DigiTimes, you've got to break out the salt shaker...

    :-)

  • Report this Comment On March 12, 2012, at 11:34 PM, jdwelch62 wrote:

    (Sorry, looking back over the article, I don't see a refernce to DigiTimes here. Must've been the other article of Evan's that I just read...)

  • Report this Comment On March 12, 2012, at 11:38 PM, bluedepth wrote:

    Evan

    If we assume that Apple did in fact did have upwards of 2 million iPads ready for pre-sale, in some ways isn't it in Apple's favor to "sell out" and have some people waiting for "1-3 weeks"?

    My personal feeling is that Apple will loose very few customers by telling them they have to wait another couple of weeks. It sends the message that "hey, this product is so great we've sold way more than we ever thought!" It will breed desire and more media coverage about the "wildly popular and hard to get new iPad." It's a marketing dream.

  • Report this Comment On March 12, 2012, at 11:55 PM, TMFNewCow wrote:

    bluedepth,

    I agree that supply shortages stoke a perception of scarcity which can benefit demand from a marketing perspective, but the trouble is at a certain point you start leaving money on the table which is never a good thing.

    As hard as it already is matching supply and demand to fully capitalize, just imagine how much harder it would be to balance the intangible scarcity perception just enough to benefit marketing but not enough to actually miss out on potential sales.

    Ultimately, I don't think this is what Apple shoots for. While it probably does enjoy the attention to a certain extent, I bet it'd rather book the sale.

    -- Evan

  • Report this Comment On March 13, 2012, at 1:01 AM, jdwelch62 wrote:

    Yeah, but currently, what's the alternative? Wait 1to 3 weeks, or just go out & buy... What? Until there's a decent alternative tablet, be it Android or Windows 8-based, or whatever, all folks can do is either wait or decide not to buy, and if you've already got your mind made up to buy, not very many folks will just walk. If it were another manufacturer at another time, then yes, I'd say they'd have a big risk of leaving money on the table. But in March of 2012 (today), Apple is king, and the masses will wait for their new toys...

  • Report this Comment On March 13, 2012, at 4:12 PM, tcheramie wrote:

    The shortage has the added benefit of driving home the exclusivity of the product in addition to the fact that Apple probably doesn't want to deviate radically from their annual update cycle. Yes, sure they pushed the launch of the 4S down the road BUT they did this precisely to keep it away from the iPad launch, mellowing out the potential ups and downs in their revenue streams. iPad now, iPhone in the fall. Demand for both products driving revenue through the year.

  • Report this Comment On March 13, 2012, at 4:26 PM, 1984macman wrote:

    The real question everyone seems to be failing to ask is how many iPad 2 sales are going on? If production of the iPad 2 at the lower price point is more than capable of keeping up with demand, then they can perhaps switch production over to the new iPad. But if demand for the old iPad is also high, then they'll need to expand production capacity, which would take more time. I'm sure Apple did its best to calculate these numbers, but it seems to me that they've been pretty conservative in those estimates as a rule. Not hard to understand why they'd be conservative, since they're heavily into JIT manufacturing.

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