Global Economics

Does the iPhone Need a Screen Saver?


Balda, reportedly the touch-screen supplier for the ?berpopular cell phone, says sales were down due to last-minute changes??aybe Apple's

An earnings report by a German touch-screen supplier Aug. 2 seemed to confirm that there is some truth??ut only some??o speculation in recent days that Apple (AAPL) is suffering production problems with its iPhone. Analysts and investors say the problems don't mean that Apple will face serious difficulty meeting iPhone demand.

Balda (BADG), a German maker of mobile handset components that analysts and investors believe is the main supplier for the iPhone's innovative display, reported worse-than-expected sales and earnings due in part to delays in production in Asia for an unnamed "large customer."

The customer, who analysts and investors assume is Apple, made last-minute changes to specifications for the touch screen, Balda said. As a result, "extensive changes to manufacturing facilities and a far-reaching restart of preparations for production were necessary," Balda said in a statement. "Delays in mass production were unavoidable." The company reported second-quarter sales fell 20% to $90 million, as growth in touch-screen production in China failed to compensate for expected declines in other businesses. Balda narrowed its second-quarter pretax loss to $2.6 million from $7.1 million a year earlier.

Not Hurting Business

Do Balda's problems also spell trouble for Apple? Analysts don't think so. "I don't think there are problems at Apple," says Tobias Loskamp, an analyst at BHF-Bank in Frankfurt. Startup pains are to be expected for a product as expensive and complex as the iPhone, says Neil Mawston, associate director at market watcher Strategy Analytics. "It would not be a major surprise to see the iPhone running into a few early obstacles along the way this year," he says. For now at least, Strategy Analytics is sticking to its forecast that Apple will sell 3 million iPhones this year.

Investors also took the news in stride. Balda shares initially plunged after the news, but recovered quickly and finished Frankfurt trading up slightly less than 1%. Apple shares were little changed, after plunging 10% over the previous week in part on rumors of production problems. "I'm not at all concerned," says Guy Wyser-Pratte, whose New York-based Wyser-Pratte Management owns about 6% of Balda.

On the contrary, Wyser-Pratte said, other handset makers seem to be lining up to buy touch-screen displays made by Balda. The displays are more sensitive, thinner, and harder to scratch or smudge than the plastic displays that now dominate the market. Unlike conventional touch screens??hich get confused by more than one finger at a time??alda's displays can sense several human digits simultaneously.

Connecting the Dots

Apple, notoriously secretive about its supply chain, has never confirmed that Balda is making the iPhone's touch screen. But industry watchers say the German company??ith production in Xiamen, China, via a joint venture with Singapore-based TPK Holding??s the only company with the capacity to mass-produce the displays.

And Balda's report of last-minute specification changes squares with Apple's disclosure earlier this year that it was altering the material used in the iPhone display. "Balda can't say, 'We have the contract with Apple and Apple asked us to change from plastic to glass at the last minute," Wyser-Pratte says. "They can't say it, but that's what happened."

Ewing is BusinessWeek's European regional editor.

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