Supply Chain Issues Could Threaten iPad 3 Supply

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Over the past few years, Apple (NASDAQ:AAPL) has encountered numerous raw material supply-related issues but has overcome these challenges every time, resisting any kind of impact on the production of its devices. There have been few such incidents last year, such as the Japanese earthquake and shortage of labor and material in China. But Apple managed these problems deftly while other tech players such as Intel (NASDAQ:INTC), HP (NYSE:HPQ) and Dell (NASDAQ:DELL) suffered.

This time, according to a recent report from DigiTimes, iPad 3 supply could suffer due to insufficient supply of high resolution displays. [1] A high resolution display will be an integral of iPad 3, something we discussed in our article titled Retailers Slash iPad 2 Prices Ahead of Anticipated iPad 3 Launch.

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Apple Has Wisely Managed Supply Related Issues So Far

In the past, Apple has overcome supply-related issues including a shortage of both labor and materials at its plants in China and the Japanese earthquake leading to a squeeze in raw material supply (see Apple Eyes $430 as Component Prices Improve).

According to a Bloomberg BusinessWeek article, Apple will continue to enjoy operational efficiency through upfront cash payments offered to its suppliers as “strategic weapons” to secure a significant advantage over its rivals. [2] By managing its supply chain efficiently, Apple is in a better position to negotiate its terms with suppliers.

iPad 3 supply issues should be a minor blip

Although Apple has managed all supply chain issues very well in the past, this time the company could indeed suffer from a temporary blip in iPad 3 supply as reported by DigiTimes. The situation this time is different because the whole supply chain has failed to substantially ramp up the supply of high resolution display panels. However, we are not overly concerned about this temporary blip as the iPad accounts for only about 13% of our $550 price estimate for Apple stock. Our price estimate is largely in line with the current market price.

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  1. Apple may be unable to ramp up supply of iPad 3 until 2Q12, say sources, DigiTimes, March 1st, 2012 []
  2. Apple’s Supply-Chain Secret? Hoard Lasers, Bloomberg BusinessWeek, November 3rd, 2011 []