June 2010
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Day June 29, 2010

Apple's supply problem

With the iPad still unavailable three months after its launch and with only 1.7 million iPhones available for purchase in the first three days, Apple’s inability to meet demand is surfacing as its most immediate and glaring problem. This problem merits the deployment of some of the cash Apple is hoarding.

As I wrote in May, Apple’s next billion users are in waiting. However, to serve them in a timely manner requires a new approach to product launch and ramps.

Apple has imposed upon itself a yearly product cycle for the iPhone and the iPod [and, probably for the iPad].  This is a brilliant move because it keeps the product fresh without having it seem disposable.  It also keeps competitors within its turning radius. However, the challenge is that the distribution network has to be filled rapidly and drained rapidly to maximize availability. This gets harder and harder as the volume grows. Imagine having to manufacture and ship into the channel a billion devices in less than a quarter.

This year’s iPhone 4 launch was heavily over-subscribed.  If Apple had enough supply, launch sales could have gone as high as 2.5 million, one analyst believes. Apple admitted mis-diagnosing demand and problems arose during the reservation process. There were insufficient units for pre-order, never mind for users walking into stores.  The shocking thing is that three months on, the iPad is still unavailable to impulse buyers who might want to pick one up with their iPhone.  This despite the fact that most of the world does not have any purchase option.

Now I ask what will happen next year?  Supply may balance with demand by October and strains will show again around Christmas.  Then what?  The iPhone 5 will be getting prepared with another 50% to 100% growth in demand.  How will June 2011 and June 2012 look?  Will Apple have 4x the supply of iPhones and iPads needed to maintain growth?

There are various solutions possible, but if Apple wants to maintain the product cycle, the event marketing and the “reveal” that builds brand value, it needs to change the way it manufactures.  By investing in automation, locating plants near to buyers and by integrating suppliers into production, it can get the quantum leap in supply it needs.  These are capital-intensive solutions, but Apple’s capital is underemployed.  I see no better use for the rapidly-building cash pile.

Kin(dling)

Verizon slashes Microsoft Kin phone prices • The Register.

My guess is that Microsoft’s business model for the Kin was always to share revenues for Kin data plans.  Trouble is that users won’t pay high monthly fees for data without a significantly more flexible device.  Thus even making the Kin free won’t get a large user base.

iPad still sold out three months post-launch

With the recent iPhone 4 launch the media spotlight has faded on the iPad.  However, the iPad is still missing in action at many (most? all?) Apple stores.  I called four stores in the Boston area and they are only available by reservation.  The waiting time varies but I’ve been told to expect one week wait at one store and an indeterminate wait at the others.

The online store shows 7 to 10 business days waiting time for all models.

Asymco estimates for Apple's third fiscal quarter

The third fiscal quarter is at an end and it’s time to estimate performance.  Andy Zaky has kicked off earnings season with his detailed accounting of what could be a $63.5 billion year for Apple.

I put forward below my estimates side-by-side with Zaky.  I come in at $62.6b for the year, differing by just under $1b or 1.6%.

His numbers are certainly within what I would consider a margin of error of mine.

My estimate for iPhones this quarter are lower due to possible slowing of sales before the iPhone 4 launch.  My Mac numbers are higher based on some early estimates of industry pick-up. I concede that my FQ4:10 iPad estimates are low, but sticking with them for now.