Tuesday, September 25, 2012

iPhone 5 launch may have been hampered by component shortage


Apple's (NASDAQ:AAPL) opening weekend sales of five million iPhone 5s may have been lower than some had expected because of supply constraints of crucial components, according to analysts. 
The idea is that Apple's manufacturing partners are having more difficulty producing the new screens for the iPhone 5, leading to shortages. The device uses in-cell LCD technology, making the display thinner by integrating touch sensors into the LCD, and Apple has contracted LG Display, Japan Display Inc. and Sharp to make the screens. However, analysts think the companies are facing challenges meeting demand for the new technology.
"Apple is facing significant production constraints due to a move toward in-cell display technology," Barclays analyst Ben Reitzes wrote in a research note. "Apple is struggling to keep up with demand." Reitzes said he expected production of the components to ramp up significantly in the fourth quarter.
"This is like the opening weekend for the summer blockbuster movie," IHS iSuppli analyst Tom Dinges told Bloomberg. "They needed to get a lot of products in the door during a tight window, and these supply constraints that were talked about probably did have some impact."
Apple CEO Tim Cook said in a statement that the company had sold out of its initial supply and was working to get more iPhone 5s into retail sales channels.
Other theories abound about why Apple was unable to have supply meet demand, notedAllThingsD. One theory is that Apple's aggressive international rollout of the iPhone 5 is, in fact, too aggressive, and that Apple had to hold back supply for the first wave of countries to meet demand in the second wave in 22 markets, coming later this week. Apple has said that by December the iPhone 5 will be available in 100 countries for 240 carriers.
Another theory is that more customers than expected are upgrading to the new iPhone even though they are not getting the new device at a subsidized price. Or it could be that Apple's manufacturing partners all around are maxed out in terms of production capacity. Analysts' expectations for more than five million weekend iPhone 5 sales could also have been entirely unrealistic.
Before Apple launched the iPhone 5, Piper Jaffray analyst Gene Munster predicted Apple could sell as many as 10 million iPhones during its first weekend of sales. Meantime, J.P. Morgan analyst Katy Huberty raised the firm's iPhone 5 sales expectations based on Apple's weekend sales, according to CNET. Huberty now expects Apple to sell 25 million iPhones in the third quarter, slightly above previous expectations.
Meanwhile, IHS, which performed a physical teardown of the iPhone 5, reported that the bill of materials costs between $207 and $238, depending on the amount of memory in the device. If that is accurate, IHS indicated that Apple's margins per device are between $442 and $611, not counting shipping, marketing, retail and other costs.

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