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Apple (Nasdaq: AAPL) may soon encounter another round of product shortages as one of its top component providers acknowledged it's having trouble keeping up with the high demand for Cupertino's iPad device.
LG Display can't meet Apple's growing demand for the iPad touchscreens LG makes, Kwon Young-soo, LG Display's CEO, told reporters recently. Shipments of the iPad to some countries, he warned, might have to be delayed due to that strong demand and tight component supplies.
LG Display is looking into increasing production lines for iPad screens, he said.
Apple launched the iPad in nine new international markets July 23 and plans to roll the device out to other international markets later this year.
Apple has reportedly been struggling with shortages of the iPad screen since early July.
Problems With iPad Screens
One of the problems causing the shortfall of iPad screens was production quality, which may be attributed to the usual teething problems new production lines face.
However, the technology used for the screen itself may also be a problem.
"These are IPS displays -- the top-of-the-line LCD displays -- and Apple has a very high quality bar to meet," Carl Howe, director of anywhere consumer research at the Yankee Group, told MacNewsWorld.
IPS, or in-plane switching, is a technology developed by Hitachi (NYSE: HIT) in 1996 to improve the viewing angle and color reproduction of LCD screens. In IPS technology, the panel's crystal molecules move parallel to the panel plane instead of perpendicularly to it, as is the case with twisted nematic (TN) technology, its predecessor.
Apple had quality problems with the 27-inch iMac screens, which are also IPS displays, Howe pointed out.
Those problems, the main one of which was a yellowish tinge to the screen, led to hundreds of consumer complaints.
Yet another problem for the iPad is a component shortage, which LG Display's Kwon alluded to in his announcement.
"The touch panel production has been one of the biggest limitations to date, but there may be issues with the polarizers and some of the LCD panel components as well," Rhonda Alexander, director of monitor research at iSuppli, told MacNewsWorld.
More Lines of Supply
Apple is probably lining up new manufacturers to its iPad screen supply chain.
"It's likely that Sanyo/Epson, now part of Sony (NYSE: SNE) Mobile Display, and Sharp may start production for iPads soon," iSuppli's Alexander said.
Prime View International, which acquired eInk last year, has licensed its AFFS IPS technology to many other suppliers, including Samsung and Sharp, and they are likely to begin expanding production, Alexander remarked. Taiwanese manufacturers may also enter the market, she added.
"Other panel makers, particularly LG's top-tier competitors and some second-tier LCD panel makers in Taiwan, are trying to upgrade their manufacturing capacity to be able to produce iPad-grade LCD screens," Harry Wang, a research director at Parks Associates, told MacNewsWorld.
"Given the demand for the iPad, Apple will not put its eggs in one basket in the future," Wang added.
Improving the iPad Product Flow
Apple likely won't be able to increase its supply of iPads until around the end of the year.
"It's not so easy to add another million units of anything just by calling in another manufacturer," the Yankee Group's Howe pointed out.
LG Display is considering adding new production lines, but that won't be a snap either.
LG has two options, Parks Associates' Wang said. One is to allocate more 10-inch panel capacity for the iPad only -- but that might affect its ability to supply these panels for netbooks. Or, the company could switch other lines to produce 10-inch LCDs. However, that will take time.
Production will be further slowed by the complexity of the technology and component shortages, Wang pointed out.
"The iPad uses some high-end components that have never been required in high volumes, so scale-up is a challenge for manufacturers and their suppliers," Wang explained. "Still, I think LG Display will boost its capacity anyway as the demand for 10-inch LCD screens is much better than that for other categories."
Was Apple's Planning Inadequate?
One question has hovered in the air since the first reports of iPad screen shortfalls began: Why didn't Apple get multiple manufacturers for the screens?
There are two likely reasons, Parks Associates' Wang said.
"First, demand for the iPad has probably exceeded Apple's internal projections, and that trickled down to affect its suppliers' forecasts and planning," Wang remarked. "Second, I believe that when the iPad was launched, LG Display was the only company with the capacity to supply the touchscreen. That's probably why Apple had no back-up supplier for the past three months," Wang added.
Fear of product leaks could have been another factor.
"The greater the number of suppliers, the more difficult it is to keep the product secret," iSuppli's Alexander pointed out. "Part of how Apple was able to keep a very tight lid on the specifics of the iPad pre-launch was by working with a very tight group of select suppliers."
Further, because Apple was working with several new elements in the design, it may have preferred to deal with only one supplier initially, Alexander said.
