Supply Management

A Wobbly Global Debut for Apple's iPad


• "It has shocked us, the levels of demand"

The launch of Apple's (AAPL) iPad has been one of the most heralded in techdom, and the early consumer enthusiasm over the tablet computer that surfs the Web, features e-books, and plays music and videos is powering sales. Yet Apple's image as a flawless marketing machine aside, this has hardly been a smooth product debut. Glitches ranging from a bizarre product ban in Israel to supply management issues in Asia have created challenges for the Cupertino (Calif.)-based company.

The iPad is certainly on a steep sales trajectory. Apple sold 500,000 iPads the first week after its early April debut. "It has shocked us, the levels of demand, at least initially," Chief Operating Officer Tim Cook told analysts during an Apr. 20 conference call after the company reported a 90% jump in quarterly earnings, to $3.1 billion, on revenues of $13.5 billion.

In markets outside the U.S., however, Apple has pushed back the iPad's release by a month until the end of May. It blames the delay on unexpectedly high demand, but analysts think Apple is having a hard time managing the production flow of the tablet computer's 9.7-inch (25-centimeter) touch-sensitive liquid-crystal display.

The big screen is far trickier to produce on a mass scale than the 3.5-inch display used on Apple's popular iPhone, says Andrew Rassweiler, an analyst with market research company iSuppli in El Segundo, Calif. "We understand that the yields on the display have been low and that they're creating a production bottleneck," Rassweiler says. Neither Apple nor touch screen manufacturers such as South Korea's LG Display and Samsung Electronics or Japan's Seiko Epson would comment on supply-chain issues.

Apple is having a different kind of problem in Israel. Customs officials in Tel Aviv this week have been seizing iPads from airline passengers entering the country. The device doesn't comply with Israeli wireless standards, according to an Israeli Communications Ministry spokesman. Apple maintains that the iPad complies with the international standards for Wi-Fi frequency specifications.

You may not find many iPads on at least two American university campuses. Princeton University won't allow its students to use the device on campus Wi-Fi networks because of data security worries. George Washington University says the iPad won't work on its wireless network until an Apple software upgrade arrives in the fall.

Apple has run into manufacturing problems on some of its products before, including its MacBook notebook computers and iMac desktops, says Shaw Wu, an industry analyst with Kaufman Brothers in San Francisco. It looks like Apple will need to make some early-course production adjustments this time around as well.

The bottom line: Apple will need to untangle its supply problems to keep up with demand once it starts selling the iPad globally.

Arik_hesseldahl
Hesseldahl is a reporter for BusinessWeek.com
With Carlos Bergfeld in Silicon Valley
Guglielmo is a reporter for Bloomberg News.

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