18 Comments

Summary:

An analyst report says that IPS LCD screen shortages (because of low yield) will impact the production volumes for iPhone 4, which in turn could upset the Apple’s mobile juggernaut. The big question is: Does Apple have a “too much of a good thing” problem?

iphone4_2up_angle.jpg

From the looks of it, the iPhone 4 is proving to be a hit, even before the release of the device. Apple got 600,000 orders — despite a creaky website and a leaky (U.S.) partner, AT&T. Whether it was the leaked device or just pent-up demand, or just simply impressive capabilities — Apple is going to make mucho dinero with this new phone.

Or will it? A report from Rodman & Renshaw analyst Ashok Kumar indicates that there are some dark clouds on the horizon, thanks to some problems in supplies of the IPS LCD display — the one which adorns the iPad and the new iPhone. (see iPhone 4: Retina Display) In a note to his clients, Kumar writes:

Low yields on the IPS LCD panel from LG Display have dramatically impacted the production volumes for iPhone 4. Our supply chain checks indicate that our earlier monthly shipment estimate of 4 million units have been reset by about half. The hope is that LG transition to Gen 5 LCD capacity by late summer could help alleviate the production bottleneck. Meanwhile there is a non trivial risk in the September quarter whereby demand for the legacy 3GS iPhone drops off faster than production can ramp up for the iPhone 4.

Hmmm…does this explain the 10-day delay in iPhone 4 shipments? Or is that just too much demand? The Counts of Cupertino tend to use cutting-edge technologies or make product decisions (great for consumers) that are sometimes challenged by the real-world realities of factories and productions.

They rely too much for parts on their part vendors. While it’s done well in the past to buy up vast quantities of parts such as memory chips, it might be difficult for the company (even with its vast resources) to corner the market on too many different components.

Actually, this makes me wonder if the runaway success of Apple’s many product lines makes the company susceptible to “too much of a good thing” problem.

Thoughts, anyone?

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  1. Writing for the sake of writing.

    1. Commenting for the sake of commenting :-)

      1. TOUCHE!!! Pwned by Ohm.

  2. Four thoughts.
    One, Apple has always had scarcity on launch. Some conjecture this is a marketing strategy to prop up price levels.
    Two, Apple had demonstrated amply that they are not fools. It strains credibility to believe that they simply do “cool things for consumers” without regard to supply chains and logistics.
    Three, Apple is an autocracy that routinely performs unnatural acts to satisfy the ambitions of Mr. Jobs. This does not extend to its suppliers. The ownership of its own chip fabrication subsidiary to make the iPad’s A4 processor is a signal that Apple intends to “culture-ize” certain key parts of its supply chain.
    Four, does any PC-maker NOT rely on external parts suppliers to make their products? Please tell me a company that makes all of its components itself. Apple’s challenge is that it is often pushing the innovation boundaries and is relying on components that are not already in mass production. That is why Apple is so far ahead of everyone else in capitalization. They innovate, and that creates hard work in production. All these rocky starts have a way of smoothing themselves out very quickly, so it seems to be an accepted part of the Apple zeitgeist.

    1. Good points … the reason I ask the question is because in the past Apple could manage to make things happen because of the size of the market but now things can go easily wrong when some parts supplier screws up.

      PS: I don’t think they own their own chip fabrication unit. Can you elaborate? Love to know more.

      1. Om, I stand corrected by you and Sam Gaw. I was referring to PA Semi, and I overstated their role in the A4.

        Also, the increased market size is a departure from the past that imposes additional risk, I will grant. I suppose that innovation is challenged as much by growth in market as it is often by growth in company size. It may be that Apple will one day face it’s innovation Waterloo.

  3. PA Semi was a fabless designer. You also have to remember that the A4 chip is a SOC, not a processor. It’s been confirmed that the chip includes a single-core Cortex A8 processor and Imagination Tech’s PowerVR SGX GPU so it is a very safe bet to make the assumption that the manufacturing of the A4 was outsourced.

    1. You are right.

  4. Sanjay Maharaj Friday, June 18, 2010

    The reason why Apple has been successful is that they are able to deliver a first class product which is innovative as well. I don’t know of any manufacturer whic does not rely on suppliers for parts so Apple is no different here. I think they have maganed this relatively well in all their product launches. The thing is that consumers know that when they buy an Apple produt it is first class with no flaws in it so that is why if there is a delay for 10 days or a month or two consumers give Apple the benefit as they know that they will after all receive an excellent innovative product and that is what makes Apple to much of a good thing.

  5. I think Kumar is underestimating Tim Cook. Apple used too, and for all I know probably still does, buy huge quantities of NAND Flash memory for to supply its iphones and ipods for 2-4 years. My guess is Apple was no different here. They would have made sure they got enough of these screens with IPS technology not only to meet their new iphones, there macs and eventually their iphones for atleast another year.

    If I got my facts wrong or something, then apple will probably just make their own IPS screens or something…

  6. Agree with most of the comments. The sheer volumes and their attempts to differentiate can create problems in the supply chain, but while this may have entail some risk for investors this year, no long term problem for Apple or customers..

  7. There was a news item today on an analyst report claiming that samsung was going to start shipping ips displays in addition to LG. It was spun as higher sales, but I think the real import is supply chain mgmt.

    1. Very interesting. It is an economic certainty that when real scarcity or inefficiency exists, so does business opportunity. If the opportunity created by Apple causes Samsung to enter the IPS display market, this is a perfect example of how Apple’s challenges at launch always have a way of working themselves out. Free markets really do work better than the best laid plans of both autocrats and bureaucrats. Maybe this is why I think that it is an economic oxymoron to suggest that “too much of a good thing” is even possible. Apple’s innovation challenge is to make darn sure that what they put out is regarded by the marketplace and its demand as “a good thing.”

  8. Richard Jones Friday, June 18, 2010

    What happened to this site..a throw away post ..ugh!!!!

  9. Apple is definitely the best tech company in the world!

  10. i think its kinda “luxury problem”. just do the skimming thingie – put the actual production up for sale at the double price and watch the elasticity cogwheels spin.

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