iPad 2 Stock Shortages Lead to Shift in Supply Strategy

iPad 2 with Smart Cover acting as a stand for landscape use.

Updated: The iPad 2 is still hard to get, both in the U.S. and in other countries where it has launched internationally. Luckily for would-be buyers, Apple is taking steps to reinforce and supplement its existing supply chain in order to be able to move more iPads more quickly.

New Supplier

In order to boost iPad supply, Apple is reportedly taking on a new supplier of displays for the tablet. According to the Taiwan Economic News, AU Optronics Corp, which is the world’s fourth-largest LCD maker by volume, has been contracted by Apple to provide flat panel screens for the iPad 2. This would mark the first time Apple has used AUO for iPad supplies. The report also says the rate Apple will pay for the displays is roughly three or four times the average rate paid by others for displays of the same size. It’s possible AUO was able to negotiate a very favorable rate in order to guarantee a significant percentage of AUO’s total output capability.

The original iPad was also supply-constrained largely due to an inability to source enough displays. LG Display, one of the iPad’s primary screen suppliers, even went on record as saying it couldn’t keep up with demand from Apple as a result of the tablet’s strong sales. Adding another supplier for the iPad 2 should greatly increase Apple’s ability to get products into people’s hands.

Absorbing Higher Costs

We reported earlier that Apple was mulling a decision to increase what it pays for components in order to secure the supply stock it needed following the Japanese earthquake and tsunami. DigiTimes reported Thursday that indeed, Apple has agreed to such a deal. According to the article, Apple will absorb additional costs on its Japanese-made upstream components in exchange for smooth shipments. Many of Apple’s upstream component suppliers source their parts from Japan, where a power-brownout policy is seriously affecting the operations of electronics manufacturers.

If Apple has signed such an agreement with AUO, other companies producing tablets may feel the heat as Japanese suppliers prioritize Apple to receive a dwindling pool of supplies. The big question will be which companies decide, like Apple, that they can absorb additional costs in exchange for an undisrupted short-term supply.

With ship times through the Apple online store still listed at three to four weeks in the U.S. and internationally, and with lines still forming at Apple Stores worldwide, it’s clear demand still far outpaces supply. Hopefully these additional measures taken by Apple help make sure more customers get what they’re after in a timely fashion.

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