Japanese earthquake poses potential supply problems for iPad2

The IHS iSuppli teardown analysis of the iPad2 so far has been able to identify five parts sourced from Japanese suppliers: NAND flash from Toshiba, dynamic random access memory (DRAM) made by Elpida Memory, an electronic compass from AKM Semiconductor, the touch screen overlay glass likely from Asahi Glass Co. and the system battery from Apple Japan. There potentially are other components from Japan in the iPad2, however, the teardown analysis process cannot always identify all components’ countries of origin. While some of these suppliers reported that their facilities were undamaged, delivery of components from all of these companies is likely to be impacted at least to some degree by logistical issues now plaguing most Japanese industries in the quake zone. Suppliers are expected to encounter difficulties in getting raw materials supplied and distributed as well as in shipping out products. They also are facing difficulties with employee absences because of problems with the transportation system. The various challenges are being compounded by interruptions in the electricity supply, which can have a major impact on delicate processes, such as semiconductor lithography. Furthermore, semiconductor facilities in Japan that had suspended manufacturing activities following the quake cannot truly commence full production again until the aftershocks cease. “Earthquakes ranging from 4 to 7 on the Richter scale will make it impossible to really restart these fabs until the earthquakes stop happening with such frequency,” said Dale Ford of IHS. “Every time a quake tops 5, the equipment automatically shuts down.” These issues may come at a time when Apple is rushing to ramp up iPad2 production to meet stronger-than expected demand for the device. The company this week announced that iPad shipments from the Apple Store have been delayed by one week from previous lead times because of the surge in demand. Apple’s supply of NAND flash has come under scrutiny in light of a temporary suspension of production and the resulting scrapping of some wafers at Toshiba’s main NAND production facility. However, the NAND devices used in the iPad are available from alternative sources, including South Korean semiconductor giant Samsung Electronics and U.S. memory maker Micron Technology. Similarly, the Elpida DRAM component can be alternatively sourced from Samsung. The compass and glass supply could prove to be more problematic issues for Apple. Although AKM said its fab that produces the electronic compass used in the iPad was undamaged by the quake, the company's shipments are likely to be impacted by the same logistical issues that will plague all Japanese industries during the short term. Compasses are available from other sources including Yamaha, Aichi Steel, Alps and STMicroelectronics. However, these components are not easily replaceable. “The calibration of electronic compasses is tricky for a number of reasons,” said Jérémie Bouchaud, director and principal analyst for MEMS and sensors at IHS. “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.” The glass used in the iPad 2’s touch screen overlay could present another supply problem for Apple. While the supplier of this glass cannot be confirmed with certainty, the concurrent release of the iPad 2 and the new Dragontrail Glass technology from Asahi Glass of Japan has led to speculation that Asahi may be the supplier of this durable new glass, according to Kevin Keller, principal electronics analyst for IHS. Physical tests conducted by IHS reveal that the iPad2 glass is more flexible and durable than the glass used in the iPad1, possibly indicating that the glass is Asahi’s Dragontrail. Asahi Glass reported damage to three of its facilities. The lithium-ion polymer battery in the iPad2 also is manufactured in Japan, the IHS iSuppli Teardown analysis service has determined. The iPad2’s three-cell battery pack on the iPad2 is labeled “assembled in China.” However, this label refers to the whole battery pack. Further investigation showed the battery itself was made by Apple Japan, which operates as a subsidiary of Apple. “Typically, battery cells are made at the site of assembly but because the iPad2’s lithium-ion polymer battery is unusually thin, it likely requires advanced battery cell manufacturing technologies that reside in Japan,” said Wayne Lam, senior analyst, competitive analysis, at IHS.