iPad2 shipment forecast lowered

This represents a reduction of 9.1%, or 4.0 million units. Based on IHS iSuppli’s final estimate of 15.1 million units shipped in 2010, IHS iSuppli now predicts total iPad shipments will rise 163.3% in 2011, down from the 189.6% predicted in February, as presented in the attached figure. IHS iSuppli has slightly increased its 2012 forecast for iPad shipments, to 62.6 million units, up from the previous forecast of 61.6 million. Apple’s first-quarter supply of the iPad2 fell far short of demand. IHS iSuppli sources indicate that Apple’s production was stymied by manufacturing difficulties, which—combined with strong demand—led to short supplies of the popular tablet. Those issues, according to the sources, included quality concerns with liquid crystal display (LCD) panels, production shortages of the new speaker, lamination issues with one of the touch suppliers and end-unit production shortfalls. While Apple is now on track to significantly increase its production volume in the second quarter, the company reportedly is still falling substantially short of its target production goal for April. Apple’s first-quarter manufacturing challenges are unrelated to the Japan earthquake and tsunami. Apple appears to have moved more aggressively than most of its competitors to mitigate any potential supply chain disruptions from the Japan disaster. As with many electronics manufacturers, Apple extensively sources components from Japan. For example, there are several devices found in the iPad2 that are manufactured in Japan that could have encountered supply problems following the earthquake and tsunami. However, Apple was quick to react to the potential supply fallout from the Sendai quake. Within days of the disaster, Apple had executives on the ground in Asia ensuring that its component supply chain would support iPad2 shipment plans in 2011. Apple reportedly has agreed to higher pricing, where necessary, to secure needed components. Apple’s fast action to lock up much of the available capacity of the leading component suppliers has left many competitors scrambling for needed components, particularly touch screens. Despite these precautions, quake-related supply constraints could still work to limit Apple’s ability to ramp up production in the second half of 2011 to the levels necessary in order to offset the first-quarter shortfall. The potential for second-half supply constraints contributed to the decline in IHS iSuppli’s 2011 iPad forecast. Mirroring the first month of the initial iPad’s introduction, demand for the iPad2 has outstripped supply, with the initial release limited to the North American market. Demand was also heavy for the freshly discounted first-generation iPads while supply remained. However, much of Apple’s iPad1 manufacturing activity is not reflected in the company’s second-quarter shipment numbers—which occurred in the calendar first quarter—given that a substantial portion of those units shipped into the channel in December 2010. Apple is expected to retain its short-term dominance in the tablet market because of the iPad’s advantages in the areas of content, marketing, supply, pricing and momentum, based on the iPad being the first product to enter the market. The iPad continues to set the standard by which other tablets are measured. Android-based tablet sales are slowly gaining momentum, but products released in the first quarter of 2011 continue to fall short of reviewers’ expectations. Apple’s supply chain management represents a critical advantage in 2011, placing the company at the front of the line when it comes to procurement of components, frustrating competitors’ efforts to build and meet product demand. Pricing is another area where Apple has a temporary edge over the competition. Finally, Apple continues to benefit from its first-mover advantage in the tablet market. Regardless of Apple’s short-term advantages, tablet competition is mounting and Apple’s market share will decline during the next five years. IHS iSuppli forecasts Apple will lose its majority position in late 2012 or early 2013, although its earlier momentum is likely to leave it with more than 50% share of the total 2012 market. The early fumbles notwithstanding, Apple’s tablet competitors are constantly improving, leapfrogging over each other in the race to get the right price/performance combination. As that price/performance weighting differs significantly by customer and region, single-brand dominance does not tend to last in the electronics market. Just the same, Apple’s lead is safe for now. "While Apple may lose its dominant share, there is no sign yet of a serious opponent to challenge Apple’s place as the tablet market leader at least through 2015", said Rhoda Alexander, director of monitor research at IHS. In 2013, shipments of other media tablets will rise to 111.1 million units, compared to only 81.3 million iPads, as shown in the attached figure. IHS iSuppli predicts iPad shipments will rise to 97.9 million units in 2015, compared to 164.2 million for other media tablets.