Apple iPad 2 Production Hindered by Japan Earthquake: IHS iSuppli

Apple's reliance on a number of Japanese parts suppliers is expected to hurt its ability to meet even-better-than-expected demand for its iPad 2 tablet.

Apple may face difficulties meeting demand for its newly released iPad 2, due to the current catastrophic conditions in Japan, IHS iSuppli reported March 17.

Following a teardown analysis of the iPad 2, the firm identified at least five components that are sourced from Japanese companies. While some suppliers have reported that their facilities were undamaged by the recent 8.9-magnitude earthquake and subsequent tsunami, a number of factors, including aftershocks that continue to rock parts of the country, will make delivery of components a challenge.

Suppliers currently face difficulties getting raw materials shipped in and components shipped out; employee absences are high, due to problems with transportation systems and interruptions in the supply of electricity-some areas are experiencing rolling blackouts. These factors are having a major impact on "delicate processes, such as semiconductor lithography," said the report, especially as the country continues to experience aftershocks.

"Earthquakes ranging from 4 to 7 on the Richter scale will make it impossible to really restart these fabs [fabrication facilities] until the earthquakes stop happening with such frequency," IHS iSuppli analyst Dale Ford said in a statement. "Every time a quake tops 5, the equipment automatically shuts down."

iPad 2 components sourced from Japan, said the firm, include NAND flash from Toshiba; DRAMs (dynamic RAMs) from Elpida Memory; an electronic compass from AKM Semiconductor; the system battery from Apple Japan; and the iPad 2's touch-screen overlay glass, which, while not confirmed by Apple, is suspected to be from Asahi Glass.

"Physical tests conducted by IHS iSuppli reveal that the iPad 2 glass is more flexible and durable than the glass used in the iPad 1, possibly indicating that the glass is Asahi's Dragontrail," stated the report. It added that Asahi Glass has reported damages at three of its facilities.

The Toshiba NAND flash could instead be provided by South Korea-based Samsung or U.S. memory maker Micron Technology, IHS iSuppli suggested, and Samsung could likewise replace the iPad 2's Elpida-made DRAM. Replacing the device's compass, however, is likely to prove more problematic for Apple. While AKM has said its fab that produces the compass is undamaged, it still faces the logistical problems now plaguing the country. And while Yamaha, Aichi Steel, Alps and STMicroelectronics all provide compasses, said IHS iSuppli, the compass works in delicate harmony with other components, making a simple swap untenable.

"The calibration of electronic compasses is tricky for a number of reasons," J??«r??«mie Bouchaud, director and principal analyst for MEMS and sensors at IHS iSuppli, said in a statement. "Compasses are sensitive to electromagnetic interference. Furthermore, the iPad 2's compass works in close coordination with the tablet's accelerometer and gyroscope. This makes it impossible to simply replace one manufacturer's compass with another."

Additionally, the iPad 2's super-thin battery pack could put the brakes on new shipments. While the packs are assembled in China, the battery itself is made by Apple Japan.

"Apple could have difficulties obtaining this battery, and it may not be able to secure supply from an external, non-Japanese source," said the report.

Introduced March 2, the Apple iPad arrived in stores March 11, and first-day sales may have been as high as 500,000 units, according to Piper Jaffray analyst Gene Munster. (Apple has not yet commented on sales figures.)

"Strong demand in stores and online suggests that our estimate of 5.5 million iPads in the March quarter is likely conservative," said Munster, whose team that day spoke with 236 iPad 2 buyers in New York City and Minneapolis.

Global Equities Research analyst Trip Chowdry reported that on the iPad 2's launch day, each Best Buy store sold its 40 iPad 2 units in approximately 4 minutes and took $100 deposits for the next shipment of tablets, expected to arrive the following week.

Apple's parts supply problem may be happening, IHS iSuppli reported, just as Apple is rushing to ramp up production to meet even-better-than-expected demand.

"[Apple] this week announced that iPad shipments from the Apple Store have been delayed by one week from previous lead times," stated the report, "because of the surge in demand."

Apple has also for now called off the iPad 2's scheduled launch in Japan. A new release date has not yet been set.