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Another Reason There Aren't Enough iPads

This may come as a shock to some Apple (Nasdaq: AAPL  ) bulls, but Cupertino is indeed subjected to the same laws of physics as we mere mortals are. In fairness, I'm a major Apple bull myself, but the Mac maker is susceptible to supply shortages like any other company on Earth, even though it already has the best supply chain in the world.

Just five days after it was unveiled, Apple had already sold out of its new iPad allotment for preorders. Domestic shipping times have now slipped to as much as two to three weeks for new orders placed directly through Apple, so clearly there's a bit of a shortage relative to demand.



My next natural question was: Why aren't there enough iPads to go around? I pegged the most likely weakest supply link as the tablet's fancy new Retina Display, since it's incredibly hard and expensive to manufacture, and yields are relatively low. DisplaySearch analyst Richard Shim believed that Apple was tapping Samsung, LG Display (NYSE: LPL  ) , and Sharp for the panels.

A few Foolish readers were skeptical. DPW824804 wrote: "If there was a severe production problem or bottleneck [because of] 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." xmmj chimed in, "I don't think Apple would have selected a display that they did not believe would make production targets."

Well, my Foolish friends, if you don't believe Shim or me, maybe you'll believe IHS iSuppli analyst Vinita Jakhanwal. According to her, Sharp and LG both didn't make the cut as their panels couldn't pass the iGrade -- Samsung was the only supplier that could meet Apple's stringent quality requirements.

Jakhanwal told Bloomberg in an email: "The display specifications on the new iPad are very demanding in terms of the very high resolution. Achieving this high resolution without compromising on the power consumption and brightness and maintaining Apple's quality standards are supposedly proving to be a challenge for LG Display and Sharp."

She believes the pair may start pitching in Retina Display panels later in April, once they work out the kinks, but for now it appears that arch-frenemy Samsung is Apple's one and only for the displays. Until then, new iPads will be a little hard to come by.

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Fool contributor Evan Niu 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. Motley Fool newsletter services have recommended buying shares of Apple 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 (3) | Recommend This Article (4)

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 15, 2012, at 11:11 AM, Steinzo wrote:

    Good article, Evan. It certainly appears to vindicate your previous article about the new iPad's apparent display supply issue. Even though, as you stated, Apple (and Tim Cook in particular) are second-to-none when it comes to supply chain management, that doesn't mean that they aren't susceptible to unforeseen (or unforeseeable) supply chain problems, or that they never take calculated risks with regard to manufacture.

    It seems to me that "sleeping with the 'frenemy'" (Samsung) for Retina Display production is a less-than-ideal situation. Let's just that that the probability is pretty high that components that competitors manufacture for Apple will soon find their way into the competitors' own products, in some form (highly motivated companies can clearly find ways around patent restrictions).

    Maybe they could use some of their $100B cash to acquire a display manufacturer and internalize the process. This could also apply to other critical components of Apple products; for example, the A4, A5, & A5X processors, also manufactured by Samsung for Apple . . . maybe Apple just needs to acquire Samsung. ;-)

    Internalizing the manufacture of key components might result in inefficiencies or other risks to Apple's production processes, but it also might make it more difficult for competitors to imitate or duplicate Apple's products.

    Just my $0.02 . . .

  • Report this Comment On March 15, 2012, at 11:15 AM, Steinzo wrote:

    Oops! "Let's just THAT that" should be "Let's just SAY that".

    That's what comes from being an amateur writer and not having a proofreading and editing staff at my disposal . . .

  • Report this Comment On March 15, 2012, at 11:45 AM, jdwelch62 wrote:

    Nice followup, Evan...

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