Tablet Wars Ignite Supply Problems

Depending on your point of view, the move by {complink 379|Apple Inc.} to assure its supply of touchpad glass earlier this year was either supply-line genius or anti-competitive bad faith. But until a few weeks ago, no one had thought to consider the move's effects on supply chains outside the tablet/netbook market.

This month, indications have started to appear that the tablet wars are causing collateral damage, outside portable computing. The first victim: digital cameras.

Earlier this month, Digitimes reported that a shortage of small panel displays — used to make the live viewfinder on the back of most digital cameras — could delay shipments from several of the world's largest camera assemblers. Asia-based giants Ability Enterprise, Altek, Hon Hai Precision Industry, and Asia Optical are all losing out on the displays to smartphone makers.

Hon Hai has other problems at present; it also goes by its English name, Foxconn, which recently announced the death of three employees at a facility in China following an explosion. (See: Apple Has a Foxconn Problem.)

Ability Enterprise, Altek, and Asia Optical now say their biggest challenge will be glass shortages likely to last through the summer. If that happens, it will mean the glass crisis is causing longer interruptions than the companies have experienced for their Japan-based supplies. The camera makers had previously worried that their biggest supply problem would be sourcing CCDs, the component inside the camera that captures the photo, many of which come from tsunami-affected assemblers in Japan.

But those fears appear to have been unfounded. CCD supplies, according to most reports, are normalizing. Yet, having weathered the tsunami, camera producers have to deal with a new, longer interruption.

Weeks before the digital camera worries surfaced, we already knew that Apple's quarterly financial disclosures showed a massive $11 billion in planned component warehousing. Most of that is material for assemblers in Asia. Officially, the buy-up of what Apple called five to six months of supply — including touch-screen display glass — was to address a massive backlog of unfilled orders for iPads and iPhones.

That's probably a wise move against competitors. What we don't know is at what point the explosive popularity of mobile computing products will distribute itself through the entire electronics industry, and start affecting supply lines for products that Apple does not itself make but which use the same components. Though cameras are the only industry where we've seen concrete predictions of shortages, it's fair to ask whether that's an unfortunate coincidence or a bellwether. Could medical equipment manufacturers, for example, see themselves competing with tablet makers for screens?

There's a central irony to the development, insofar as Apple's cornering of the market for glass is happening in tandem with the much-discussed shortage in rare metals used in electronics production. Paradoxically, while recession fears seem to have not dented demand for tablets and smartphones, the supply chain has started to strain under all that popularity. The components are even scarce in China, according to some recent reports.

Mix in some wise, but aggressive, business moves, like Apple's glass grab, and suddenly all the marketing in the world is irrelevant, because OEMs may not have all the parts to make the machines. The only silver lining, so far, is that no one can photograph the empty shelves. Because they can't find a camera.

12 comments on “Tablet Wars Ignite Supply Problems

  1. SunitaT
    May 28, 2011

    Thanks for the post Marc.  How long do you for the situation to normalize i.e to increase the production of touch-screen display glass ?

  2. Mr. Roques
    May 28, 2011

    Beautiful move by Apple… probably the only one that could do it (Apple sits in a TON of cash that it hasn't invested… ). Buying all that glass makes perfect business sense: 1) guarantee iPad and iPhone production 2) limit the amount of competition.

    Building on tirlapur's question: what's the biggest limitation to glass production? raw materias? I read a few months ago that it was the actual industries that couldn't scale up as fast as they want. But it's been a few years since the touchpad revolution arrive. Should be ready by now, no?

  3. DataCrunch
    May 29, 2011

    The glass shortage caused by Apple’s its iPad 2 manufacturing may have had a hand in the launch date delay of the RIM PlayBook tablet.  I agree with the article that this shortage could affect other markets besides the usual iPad competitors.  As for digital camera’s people may just have to buy iPads and iPhones instead to take pictures, until the glass supplies normalize.  Just kidding…sort of.

  4. Backorder
    May 29, 2011

    A very interesting case study in supply chain dynamics. Of course, with all the backlog that apple faced in the past two quarters, it can not afford to wait for components to arrive. The supply managers at Apple must have been under tremendous pressure after the production missed out on billion dollar revenues for half an year! I dont blame apple but if this creates problems for other companies/end equipments it would tell us just how much foresight the components manufacturers have been carrying all along. The demand for smartphones is an opportunity for companies across the electronics supply chain to scale up.

  5. Himanshugupta
    May 29, 2011

    Really, things are interconnected. I don't think that suppliers can increase the production by building extra facility within one quarter or so. The shortage of material in buiding smartphones/tablets can have rippling effect as other companies will also try to further chock the supply chain in anticipation of the longer delivery time.

  6. Nemos
    May 29, 2011

    “and suddenly all the marketing in the world is irrelevant, because OEMs may not have all the parts to make the machines”

    I can't explain that, why the market is so unstable? Why the market is walking in a tightrope?

    I can't blame Apple for that kind of move, and always will be moves like that but why affected other parts of industry. And the delay in cameras we can forgive but the delay in medical equipment is unforgivable.

  7. mario8a
    May 29, 2011


    is it possible the small display manufacturers did not forecast correctly?

    regardless of Apple demands they should have a safety stock for this situations.



  8. Taimoor Zubar
    May 30, 2011

    “was to address a massive backlog of unfilled orders for iPads and iPhones”

    I am not sure if Apple had planned to cut off supply for other manufacturers and was actually expecting the shortage of displays. As you said, they may have purchased the inventory to fulfill the backlog. Coincidentally that may have created a shortage in the market which made other producers suffer.

  9. Marc Herman
    May 31, 2011

    Mario, yeah, I think it's entirely possible the camera manufacturers just blew it. I'm sympathetic because it's probably hard to plan too far in advance for a 3-400% increase in demand for one of your componants, from outside your core competition, blowing up in the space of 8-9 months. It's like if you told me suddenly, over the course of a year or two, everyone wanted to get their news from their friends via tiny broadcasting operations inside their telephones, instead of buying magazines, and suddenly….oh, wait.

    May 31, 2011

    Typically tablet glass is thicker than phone or camera glass due to the size of the display.  It would be interesting to understand if the demand for large format glass is affecting the supply of small format glass.  If it is, it may point to supply issues with raw materials or supplier turning capacity over to the production of large format glass.  I would doubt Apple would buy stock to keep the competition out.  I reckon they would only stock up to meet their own volume projections.  The display is a large ticket item so probably too expensive to buy up for no good reason.

  11. Daniel
    May 31, 2011

    @Marc, what’s the basic reason behind this scarcity of display panels. I don’t think Apples move didn’t affect the market. They had given a huge order 5-6 months back and they had completed the order. I think the industry has to act according to the demand by increasing the productivity. I have a doubt whether the manufacturing industry is playing the double game like OPEC for maintaining the crude oil prices high.

  12. Barbara Jorgensen
    June 1, 2011

    Hi Marc,

    As you know, every investment such as Apple's carries a risk/reward ratio. This time, Apple's gamble paid off. The other side of the coin is the introduction of a new type of glass that renders the current offering obsolete, or an oversupply of glass that makes Apple's $3 billion investment worth pennies on the dollar. (Where does one sell excess glass, anyway?) I think it's all about timing, and this time it worked in Apple's favor.

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