Guess What Could Stop the Tablet Revolution?

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With 2011 shaping up to be the Year of the Tablet, securing the display components for the looming army of tablets may be a key factor in determining success. Last year, we saw that the fast start for the iPad (s aapl) prompted LCD display shortages from Apple supplier LG, which said it was having a hard time keeping up with demand. Now with Apple selling 7.3 million iPads in the December quarter, the iPad 2 on the way and seemingly every manufacturer at CES prepping a rival, the display component crunch could constrain the flow of tablets and hurt some manufacturers who aren’t prepared.

The focus on displays may be what Apple was referring to when it reported last week during its earning call that it was investing $3.9 billion to secure inventory components through three vendors. MacRumors speculated that the sum was aimed at shoring up Apple’s access to displays, especially ahead of the iPad 2 launch. In December, Apple reportedly struck two deals with Toshiba and Sharp to manufacture displays, though Sharp denied the report. Apple, according to Digitimes, is also securing iPad display panel shipments for 65 million units this year through LG, Samsung and Chimei Innolux. That’s a huge number of iPads, and it would make sense for Apple to lock up the necessary components to ensure the iPad success story continues.

Tablet competitors may do well to follow Apple’s example. Last month, Frank Chien, chairman of Formosa Epitaxy Inc., a leading Taiwanese LED maker, predicted that demand for high-end LED chips for LCD displays could outstrip supply starting next month as tablet production ramps up across the industry. ISuppli said earlier this month that global tablet shipments are expected to hit 57.6 million units, up from 17.1 million in 2010. The overall demand for a relatively new product, however, is still forming, said iSuppli. The unpredictability of the nascent market could put a lot of pressure on display makers, which may face shortages or potentially oversupply as they try to guess how the tablet market performs.

For those building tablets, the challenge may be to make sure they have enough display panels to meet demand. The best companies might be the ones that have access to their own display technology, companies like Samsung, LG and Sharp. And even among display makers, the best positioned manufacturers will be those that have the LED-chip technology in-house, said Sweta Dash, senior director for LCD research at iSuppli in a story in LED Magazine last year.

“By the second half of this year (2010), a clear distinction will emerge between the ‘haves’ and ‘have-nots’, among the panel suppliers,” Dash said.  “Those panel makers that have their own internal manufacturing of LEDs will have sufficient supply in 2010, while those that don’t will encounter constraints.”

Tablets aren’t the only things causing the crunch. The overall popularity of LED-backlit LCD displays in televisions and computers could also help tighten supply for display components. ISuppli said last week that more than two-thirds of large LCD panels shipped worldwide in 2011 will incorporate LED backlights, up from less than one half in 2010. This year, LED penetration in television and monitor panels will hit almost 50 percent compared to 20 percent last year, while LED backlighting in notebooks and netbooks are expected to be 100 percent.

With so much competition in the coming year, we might not see any one tablet place the demands of the component supply chain that the iPad did. But if the tablet market evolves as many are predicting, the race will be on to snap up display components and fast. Apple is getting ready for the tablet revolution, and in doing so, has shone a light on the importance of the electronics supply chain.

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A $799 Xoom Shows Why Apple’s Component Hedging Works : Mobile Technology News «

[…] Motorola on the other hand, is completely dependent upon other companies for nearly all of the components in its devices, and in particular, the Xoom tablet. We’ll know for sure if there’s any Motorola hardware inside after the Xoom launches and is torn down for examination, but few, if any, of the components will be made by Motorola. A tear down of the Droid X, for example, doesn’t list any Motorola parts. Instead, the company has to coordinate the price and availability of components from various vendors — and if any of those parts are also used in similar Apple products, it’s a safe bet that they’ll either be scarce or will cost more. Indeed, the supply of tablet display panels and other components could crash the growing wave for tablet com…. […]

Mandar

Apple is becoming the Blackberry for corporate. Now, companies have started using iPad as a corporate device which is definitely a winning point for Apple. Since corporate will buy in bulk and are the actual game changer (MS profits through corporates) the path is silver for Apple. Google will have to fight back with a lot of conviction if it has to win or at least come at par with Apple.

Bodry

I am pretty excited about the effect Android has had on the Tablet market. I think this is the sort of competition that is good all around, because it helps keep apple on its toes, while also opening the door for other non-proprietary companies to join the game. Will be so many cool toys by Christmas too ;)

Alcibiades

No, the biggest risk to tablet sales are onerous data plans. Most tablet manufacturers seem to be selling them as mobile devices that require constant 3G data instead of tablet computers that can be used with wifi or 3G data. AT&T’s earnings suggest that 10% of new US iPad buyers are activating 3G service. 3G service is nice to have, but only needs to be accessed as a pay-as-you-go basis (I’d like to buy blocks of 3G data instead of the current month to month situation). Motorola, HP, etc need to be bringing out Wi-Fi only tablets and be offering competitively priced 3G tablets that don’t require a new data plan. Or, carriers need to let smartphone buyers add a tablet to their overall data plan for $10 a pop.

PXLated

Goes to show there are many obstacles – First to even manufacture, then to price, with or without a data plan.
Apple seems to have the advantage in all areas.

Johnny Tremaine

Agreed.

If anything, the wireless carriers and the Android tablet manufacturers could be cutting their own throats in the tablet market, by hitching them to carrier data plans.

Sure, theoretically, they can also produce Wifi only versions, but has anyone seen a Wifi only Samsung Tab yet?

Didn’t think so…

studentx

Apple just invested 3.9 billion to guarantee component supplies. I’m sure they won’t be running out. Even if you’re someone like Samsung, you gonna sell your displays to Apple cash upfront or hope you can sell your own tablets? Apple gets a guarantee number even if Samsung’s supplies are constrained for their own products.

Being a manufacture in this case is not necessarily an advantage.

Lynne

Guess what could stall tablet sales? B&N’s Nook Color. Only $250, it does wifi internet and is one gorgeous screen for reading and surfing the web. Also offers many extras and being Android based, should open up to other apps. Included are games, music, and video support.

chano

I guess that’s why Nook 3 is being withdrawn, No one seems to want it.

Rick Mainstreethost

Apple has a big advantage, plus they have a better product that is more wanted by consumers. mainstreethost

Apple Turnover

Nothing beats cubic money when it comes to buying components beforehand in huge quantities. I can’t wait to see the component supplies run dry for the iPad rivals before the year ends. Meanwhile Apple and Foxconn will be churning out iPad 2s like there’s no tomorrow. Apple has everything going for it. An iOS platform that includes four products using similar or overlapping components (iPhone, iPod Touch, iPad and AppleTV). Retail outlets that number about 323 all over the globe. That huge, almost $60 billion cash reserve. No company has what Apple has in place. Apple has an ultra-loyal consumer base that will pre-order almost any product Apple introduces before it’s even in stores. I’m willing to bet Apple will sell 30 million iPad 2s before the year is out and with the Verizon iPhone Apple should be able to sell an average of 18 million iPhones per quarter.

I don’t care how many devices Android OS is on. Apple is going to be making the money since it’s in full control of every step of design, manufacture and retail. iOS may not dominate market share, but it will dominate financial share.

Peter

Here’s an idea–rather than going with LED backlit LCDs, go with OLED.

PXLated

Advantage Apple – Those billions in cash buy them guarantees.
Android Fragmentation – Might be a lot of android in the marketplace but not one mfg has the clout Apple does.

dlovely

you mean the billions in cash that should be given back to it’s investors? 2011 is the year of android and tegra, nice knowing you fruity people…

jimmy

Giving billions back to investors is a terrible idea. Apple, despite what they say, is a hardware company.
Say you’re putting out an iPad2. iFixIt says the iPad has about $250 in components in it. Add to that $50 for labor and shipping. So, it costs Apple $300 to make an iPad. BEFORE you buy it. So, assuming a 5 million unit initial production run to meet demand, Apple has to put out around $1.5 billion before making a dime. And the iPad2 will probably be a 10 million unit initial production run.
That’s just the iPad. There are iPhones, touches, iPods, AppleTVs, iMacs, and Macbooks that all require billions in capital output just to start a manufacturing run.
I’m happy a company can have the discipline to keep enough cash on hand to control its own production without taking on debt.

PXLated

Shareholder are happy, they’ve made a ton in stock appreciation. More than they would have in dividends.
But, I suppose you had to find something to bitch about.

Yacko

Cutting edge growth stocks typically do not pay a dividend or if they do it is a token amount.

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