Apple 2.0

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Report: iPad 2 has 'yield difficulties'

February 28, 2011: 10:59 AM ET

But not serious enough to keep it from being "a critical positive catalyst" for Apple

Source: Apple Inc.

Apple (AAPL) is once again "pushing the technological envelope" by making the new iPad set to be unveiled March 2 far thinner than its predecessor, according to an unsigned Goldman Sachs research note issued Monday.

"The iPad 2's ultra-thin glass screen is generating yield issues," the report states, citing information from its Asian technology research team. "This appears to be more of a process problem as opposed to a technology problem, and we wouldn't be surprised to see volumes ramp fairly quickly as the process improves."

This is a familiar pattern. Indeed, as the report notes, "almost all of Apple's new iOS products start out with limited volumes."

The report goes on to say that Goldman Sachs expect the iPad 2 to include ...

  • A front-facing camera to enable FaceTime video chat, a feature Apple can be expected to market heavily
  • An updated processor and improved graphics capabilities
  • Support for both GSM and CDMA technology, but not, for now, LTE (to conserve battery life)
  • No change in storage capacity, to preserve Apple's healthy profit margins
  • A 10% reduction in wholesale average selling prices, although the report notes that given the iPad competitors' steep price tags, "a price cut does not appear to be necessary"

Goldman Sachs' takeaway message: "We expect the device to provide an early line of defense against the wave of tablet competitors arriving in coming months, and we expect the launch to represent a critical positive catalyst for Apple's stock."

UPDATE: For a report on the iPad 2's production yields that contradicts Goldman Sachs', see Barron's here.

Also on Fortune.com:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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