Apple iPad production hit by 'manufacturing bottleneck' - report

Posted:
in Current Mac Hardware edited January 2014
Availability of Apple's forthcoming iPad may be limited when it launches later this month, due to an "unspecified production problem" that could restrict the number of shipped units to just 300,000.



In a note to investors issued Monday, analyst Peter Misek with Canaccord Adams said the issues could limit the initial launch to be in the U.S. only. He also speculated that Apple could even delay the launch of the iPad by a month due to alleged production issues.



"The upcoming iPad launch may be somewhat limited as a manufacturing bottleneck has impacted production of Apple's newest device," Misek wrote. "An unspecified production problem at the iPad's manufacturer, Hon Hai Precision, will likely limit the launch region to the US and the number of units available to roughly 300K in the month of march, far lower than the company's initial estimate of 1,000K units."



"The delay in production ramp will likely impact Apple's April unit estimate of 800K as well. It is also possible that, given the limited number of units available in March, the launch will be delayed for a month."



Given the potential constraints, Misek believes Apple will sell 550,000 units in its third financial quarter of 2010, which ends in June. The lower numbers do not reflect lesser demand, but are simply due to the prospect of a production delay.



Misek believes that Apple will sell 1.2 million iPad units in its 2010 fiscal year after all production issues are alleviated. He has forecast sales of 3.5 million iPads in the company's 2011 fiscal year. Those predictions fall in the middle of Wall Street's expectations of between 1 million and 5 million iPad sales in the first calendar year.



"We believe that the only material impact from the iPad delay could come in the form of frustrated consumers and some modest loss of lustre for the company's product launch," he wrote.



Misek also checked with key global carriers and found that iPhone sales are currently higher than many had anticipated. The analyst has raised his forecast for handset sales in the current quarter to 7.9 million units, up from his previous prediction of 7.2 million iPhone sales. In the holiday quarter, Apple sold a record 8.7 million iPhones.



He also reduced his forecast for iPhone sales in Apple's fourth fiscal quarter of 2010 by 800,000, because he expects the multi-touch handset will not arrive on the Verizon network until Apple's 2011 fiscal year.



"While the end date of AT&T's iPhone exclusivity agreement is not publicly available, as we have previously stated, we believe there is a reasonable chance that a new iPhone capable running on Verizon's CDMA network is in the works," Misek wrote. He has shifted his predicted launch timeframe from the fourth financial quarter of 2010 to the first quarter of 2011.



Speculation of a Verizon-capable iPhone launching in June has quieted since Apple introduced the iPad in January. It was then that Apple revealed that only AT&T would provide a 3G data plan for the device in the U.S.



Only days before the iPad event, Apple executives defended AT&T, its exclusive partner for the iPhone, during their company's quarterly earnings conference call. Apple Chief Operating Officer Tim Cook called AT&T a "great partner," and said that multi-carrier deals are not necessarily inevitable in every market where the iPhone is available.



Canaccord Adams has maintained its 12-month price target of $250 for AAPL stock, and reiterated its buy rating.
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Comments

  • Reply 1 of 86
    damn_its_hotdamn_its_hot Posts: 1,148member
    What do you expect now that the Kids uh, er employees get recess AND lunch...
  • Reply 2 of 86
    smiles77smiles77 Posts: 668member
    If there are only ~300,000 units, there are going to be a lot of unhappy people. I predict that there will be enough demand for around 1 million sold in the first week. Not good for product constrictions.
  • Reply 3 of 86
    gazoobeegazoobee Posts: 3,754member
    Quote:
    Originally Posted by AppleInsider View Post


    Availability of Apple's forthcoming iPad may be limited when it launches later this month, ...



    This is turning out to be just like the 3Gs launch.



    It's almost guaranteed that no one outside of the USA will hold one of these things in their hands until Xmas 2010-11.



    What happened to all those awards Apple won in recent years for managing their supply chain better than any other company? I know they are a much bigger company now, but they are screwing up big time over the last couple of years. They can't seem to produce a single product without delays and major flaws.
  • Reply 4 of 86
    aaarrrggghaaarrrgggh Posts: 1,543member
    There seem to be several gaps in logic in his assessment. Firstly, that Verizon would impact total sales by ~10% two quarters out, yet preliminary numbers for this quarter are up 10%. Global unit growth should easily overshadow what Verizon would bring to the table, and if his estimates are based on rumors of unannounced products he is worse off than us...



    The other major flaw is his price target. If he thinks that Apple's (historically) weakest quarter is almost on-par (down 15%) with its best quarter in iPhone sales, yet EPS forecasts are 64% lower. Apple also has the benefit of a significantly lower P/E ratio than historic, with a PEG of a mere 0.67 (based on consensus)!



    Just letting the PEG trend toward unity should see AAPL much closer to $300 than $250, and as earnings surprises kick in we should see it much higher.



    Do analysts just think they lose credibility if their price target is more than 20% growth?!
  • Reply 5 of 86
    gazoobeegazoobee Posts: 3,754member
    Quote:
    Originally Posted by AppleInsider View Post


    ..." ... far lower than the company's initial estimate of 1,000K units."...



    Isn't 1,000K also known as "1 Million"?



    Why not just say a million?
  • Reply 6 of 86
    aaarrrggghaaarrrgggh Posts: 1,543member
    Quote:
    Originally Posted by Smiles77 View Post


    If there are only ~300,000 units, there are going to be a lot of unhappy people. I predict that there will be enough demand for around 1 million sold in the first week. Not good for product constrictions.



    Agreed... but it shouldn't have any financial impact if the forecast sales for FY2010 are just 1MM units total.



    I'm half suspicious that Apple intended to limit supply initially so they can meet their stated release date for the WiFi version, but get the higher ASP when the 3G versions come out with improved availability.
  • Reply 7 of 86
    aaarrrggghaaarrrgggh Posts: 1,543member
    Quote:
    Originally Posted by Gazoobee View Post


    They can't seem to produce a single product without delays and major flaws.



    Isn't that a good reason to limit initial supply so you can fix the problems that may arise?



    Apple's supply chain management is credited for limiting inventory more than maximizing production.
  • Reply 8 of 86
    quadra 610quadra 610 Posts: 6,665member
    Limit the initial supply. Increase demand.
  • Reply 9 of 86
    woohoo!woohoo! Posts: 291member
    Quote:

    It is also possible that, given the limited number of units available in March, the launch will be delayed for a month.





    Emporer Jobs is most displeased with your apparent lack of progress.
  • Reply 10 of 86
    damn_its_hotdamn_its_hot Posts: 1,148member
    Quote:
    Originally Posted by Gazoobee View Post


    Isn't 1,000K also known as "1 Million"?



    Why not just say a million?



    Different folks use different methods of grouping. I suppose you are one that hates it when someone uses the "," (comma) for the decimal delimiter also (as is done in a large part of the world outside the US)? If it is equivalent who cares - not everyone does it the way us "good old yanks" do it!
  • Reply 11 of 86
    steviet02steviet02 Posts: 592member
    Quote:
    Originally Posted by Tods View Post


    It's not necessarily bad. What if it makes people want it more?



    Depends what the manufacturing problem is.... Good luck to the 300,000 first run purchasers. I'll wait til I see something compelling, worked out manufacturing issues, and drop the price by $100.
  • Reply 12 of 86
    antkm1antkm1 Posts: 1,441member
    I am a huge follower of the iPad, untill i saw the launch. Now i'm waiting to see what the competition brings (i.e. Google Chrome OS Netbook). Screw MS/HP products. If the "Chrome-Book" fails expectations, then it's iPad 2.0 for me. Just not compelling enought to wait in lines. They need to put some kind of wireless home/office networking into the OS. Just put the "Finder" in it already!
  • Reply 13 of 86
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by Gazoobee View Post


    What happened to all those awards Apple won in recent years for managing their supply chain better than any other company? I know they are a much bigger company now, but they are screwing up big time over the last couple of years. They can't seem to produce a single product without delays and major flaws.



    Scalng up can get you a better return per unit but it can also limit your product, too. This is known as Diseconomies of Scale We don't know where the problem lies. It might not even be directly related to any company Apple is in touch with. A vendor of a vendor of a vendor is having production issues of a component or even getting ahold of raw material to make the component. Whatever the issue, this is not likely to get better. I think we'll have to see other areas of Apple's product line expand to deal with this growth





    Quote:
    Originally Posted by aaarrrgggh View Post


    I'm half suspicious that Apple intended to limit supply initially so they can meet their stated release date for the WiFi version, but get the higher ASP when the 3G versions come out with improved availability.



    It wouldn't be a bad move. Better to have the news report that the supply is low than the channel are stuffed.



    I also wonder about the release and then pull of the iPad SDK Beta 3 which had the video conferencing elements. Could Apple be testing the waters with this to see what the interest is? Could they have wanted to add it but the camera component was not ready and had no guarantee their would be enough supply so they favoured to potentially making us pleasantly surprised instead of woefully disappointed?
  • Reply 14 of 86
    rot'napplerot'napple Posts: 1,839member
    Time to hire some more kids... sorry, couldn't help myself...
  • Reply 15 of 86
    bdkennedy1bdkennedy1 Posts: 1,459member
    Who didn't see that coming? Happens with every new product they release.
  • Reply 16 of 86
    There are many reasons why this delay could exist. Besides the obvious, that there really is a manufacturing delay. There could also be, heaven forbid, last minute design issues. However it is more likely that this is a deliberate attempt to keep the initial prices high.



    It has been reported by many resources that customers are not very happy with the initial price of $499. In fact, there were also demographics that depicted a drop in customer interest. Following this, an apple corporate executive is commented as stating that Apple would consider lowering the prices if the the economy deemed it necessary. Since that announcement there has been no further discussion of the matter and Apple is probably upset that it was even mentioned.



    There is a well known business marketing tactic made successful by the Nintendo corporation with the release of the Wii. In the initial launch there was a lower than expected interest in the device due to the price. Studies showed that there would not be an interest by the consumer if the manufacturer kept the higher price they intended. That higher price was meant to be in line with the X-Box and other devices recently released and showing large profits, profits Nintendo desperately needed. It is speculated that in an effort to raise consumer confidence in the price they had a limited release and stated that there were manufacturing issues involved. With the limited release, demand for the product soared and as that demand became high enough, the price they intended to sell the device for became more than a possibility.



    Manufacturing delays continued for a long time after the release. There is further speculation that Nintendo did so deliberately to increase the price even more. With their continued success at price hikes in the device, the tactic worked in the companies best interest.

    This incredibly business move has been noted as a viable method of launching a new product. It is another speculation that other companies, Barnes and Noble Nook recently released, have tried to use the same tactic.



    It would only seem appropriate that Apple would consider such a tactic considering the suggestion that they could sell the product for less than they are offering it initially. This tactic might also increase sales through the extra press and communications they receive, which in the end increase demand for a product that many are unsure of it's success. When we hear of manufacturing delays, they could be just that. On the other hand they could be something more entirely which leaves us to consider all the options when no concrete information is provided.
  • Reply 17 of 86
    charlitunacharlituna Posts: 7,084member
    Quote:
    Originally Posted by aaarrrgggh View Post


    Isn't that a good reason to limit initial supply so you can fix the problems that may arise?



    Apple's supply chain management is credited for limiting inventory more than maximizing production.



    there's no details about this delay. what this problem could be. it could be a defect. or it could be that the factory was hit with a mass case of the swine flu and a third of the staff are now out and the rest can't work fast enough to make up the difference.



    either way, it is also possible that this whole thing is bogus and there's no problem, no delay and Apple will have the units they asked (which may or may not be 1 million units) for by the as yet unannounced launch date. This could be part of the reason why they waited 60 days (for all we know they've had their FCC approval for weeks).



    Quote:
    Originally Posted by Rot'nApple View Post


    Time to hire some more kids... sorry, couldn't help myself...



    i know you were trying to be cute, but you could be onto something. What if this company was on that hit list and this claim of a delay is because the analyst figures things would be halted while they work out whatever Apple uncovered.



    Also, I haven't seen anyone suggest that this delay is because Apple decided to put back the camera that was so clearly in the prototypes (if you believe the rumors and that repair guy in Kansas)
  • Reply 18 of 86
    Quote:
    Originally Posted by Quadra 610 View Post


    Limit the initial supply. Increase demand.



    Absolutely. Does anyone doubt that any new product from Apple or Nintendo won't have a restricted supply when they're released? Here come the reports of outrageous prices on e-bay.
  • Reply 19 of 86
    gqbgqb Posts: 1,934member
    Quote:
    Originally Posted by Gazoobee View Post


    Isn't 1,000K also known as "1 Million"?



    Why not just say a million?



    Probably because its a little easier to see the relationship between "300k and 1000k" than between "300k and 1 million".
  • Reply 20 of 86
    adamiigsadamiigs Posts: 355member
    All of the trolls are correct, it's apple's "fault", better to be like say M$ and release a product with a 16% failure rate and just force customers to return for repair, damn the quality checks in place!
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