Apple 2.0

Covering the business that Steve Jobs built

Why Apple couldn't build iPad 2s fast enough to meet demand

April 22, 2011: 8:28 AM ET

An IHS iSuppli report is full of juicy details Apple left out of its quarterly earnings call

Photo: REUTERS/Beck Diefenbach

When asked last during Wednesday's earnings call why Apple (AAPL) sold fewer than 4.7 million iPads last quarter -- roughly 1.6 million less than Wall Street expected -- COO Tim Cook ducked the question.

"I can tell you that I'm extremely pleased with the progress of the manufacturing ramp," he replied. "And so I'm very confident that we can produce a very large number of iPads for the quarter."

The analysts let that slide, but maybe they shouldn't have. A report issued after the markets closed Thursday by IHS's iSuppli fills in some of the blanks. According to its sources, Apple's iPad production lines were stymied by a host of manufacturing problems, among them:

  • quality concerns with liquid crystal display (LCD) panels
  • production shortages of the new speaker
  • lamination issues with one of the touch suppliers
  • end-unit production shortfalls

"While Apple is now on track to significantly increase its production volume in the second quarter," according to the Thursday's iSuppli News Flash, "the company reportedly is still falling substantially short of its target production goal for April."

As a result, iSupply has lowered its 2011 iPad shipment forecast to 39.7 million from the 43.7 million forecast in February.

Source: IHS iSuppli

The report is accompanied by a chart purporting to show the iPad's competitors steadily gaining market share in the next two years and finally overtaking it in 2013. This despite the many first-mover advantages it describes the iPad as having over what Steve Jobs calls the "also-rans," including marketing, supply, momentum, applications and even pricing.

"Given its reputation as a seller of premium products, pricing is the last category where Apple should be expected to have an advantage," says iSuppli's Rhoda Alexander. "However, Apple's move to discount the first-generation iPad when the iPad 2 was introduced frustrated competitors' efforts to build sales volume while retaining a profit margin."

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[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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