Once upon a time, in a galaxy far, far, away, I wondered to myself, "Is Apple's (NASDAQ:AAPL) obsession becoming a liability?" Well, by "once upon a time" I actually mean less than a month ago. And by "galaxy far, far, away" I mean Austin, Texas.
That message didn't sit too well with some Foolish readers, who may not realize that overall I'm about as bullish as a Fool can get on the Mac maker. Fool henjo wrote, "Never thought I'd see the day when 'QUALITY products' was a liability." Reader atthelakejim chimed in, "This is probably the dumbest article I have read on Fool. If Apple has a competitive advantage, it is that people believe in the reliability of Apple products."
My point was that the most sophisticated and elegantly designed products do the company and its investors little good if it can't manufacture enough of them and subsequently sell them. Even Apple itself acknowledges supply constraints as a risk factor. (Just check out the 10-K -- page 69.)
That's what he said
This idea is coming to a head with the freshly unveiled, yet-to-be-released redesigned iMacs that Apple showed off last month. A French rumor site is quoting a third-party distributor that says the new iMacs may even be delayed until early next year.
The desktops were displayed in October with advertised shipping times of November for the 21.5-inch model and December for the 27-inch model. Those time frames are still being quoted, but we're now halfway through November with no sign of new iMacs to be found.
On the last conference call, Tim Cook even said:
In terms of general shortages on the iMac, we'll be constrained for the full quarter in a significant way, part of that is that we're beginning shipping the 21.5-inch iMac in November and the 27-inch in December. And so there will be a short amount of time during the quarter to manufacturer and ramp those and I expect the demand to be robust. So we will have a significant shortage there.
A "significant shortage." His words, not mine.
To infinity and beyond
The challenges stem from the use of a new complex manufacturing technique that's never been used on consumer desktop PCs before called friction-stir welding. This process is part of what enables the new iMacs to be so thin at the edge.
The process was invented nearly two decades ago in 1991 at The Welding Institute in the U.K. by Wayne Thomas and a group of researchers. It's a patented manufacturing process that joins thin sections of aluminum alloy and has historically been used in automotive and aerospace applications.
Companies like Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT) frequently use friction-stir welding. Apple's not exaggerating when it says the process is typically used in "airplane wings" and "rocket booster tanks."
A tale of three British licensors
Since TWI holds the patents for the technique, that means Apple is licensing the technology from the institute. That's at least the third British company that Apple licenses from, with the first two notable mentions being ARM Holdings (NASDAQ: ARMH) and Imagination Technologies. Apple licenses specific processor cores as well as architecture instruction sets from ARM, and its GPU core designs come from Imagination.
In an interesting turn of events, Imagination also recently acquired ARM competitor MIPS Technologies (NASDAQ: MIPS) for $60 million in a deal that could help it compete on the CPU front with ARM, while ARM's Mali GPU design competes with Imagination's GPUs.
Better luck next time
Pursuing such over-the-top manufacturing processes and ambitious industrial designs is absolutely a competitive advantage over PC rivals. Hewlett-Packard (NYSE:HPQ) has certainly taken note, with CEO Meg Whitman recently saying, "Apple taught us that design really matters." HP's new Spectre One all-in-one desktops may look an awful lot like the previous iMacs, but the iconic PC maker is going to have a tough time copying the new ones.
The small consolation is that desktops are a small business for Apple, comprising just 3.8% of sales last year. Still, Apple needs to get these things out the door.