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A Supply Bottleneck Hurts iPhone 5 Sales

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All three screen suppliers report problems and delays.

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MINYANVILLE ORIGINAL Apple (NASDAQ:AAPL) reported yesterday that it sold five million iPhone 5s during its launch weekend. While this number broke records for the company, it still fell short of the most analysts' estimates, which ranged between six million and 10 million phones. Many analysts speculate that Apple's supply constraints contributed significantly to the miss in sales. Bloomberg confirmed this belief today, reporting that the iPhone 5's new in-cell screen technology has proved difficult to produce for Apple's supply partners.

LG Display (NYSE:LPL) and Japan Display both produce the screen, which combines the display and the touch censor into a single part. According to Barclays, Apple also hired Sharp (PINK:SHCAY), Japan's largest maker of liquid-crystal displays, to expand its list of suppliers and meet demand for the phone. However, all three have struggled to produce the screens. Sharp has encountered the most difficulty and failed to produce screens before the phone's launch. It had troubling reducing the defects in screens that use the touchscreen technology.

Smarthouse.com highlighted the lack of supply, reporting that those who damage their screens will have to wait until Christmas for a new one or pay $220 for another screen due to the limited supply. Ben Reitzes of Barclays stated that 10 million units of in-cell panels will have been produced by the end of the third quarter of this calendar year.

Apple is still in a good position, though. IHS ISuppli senior principal analyst Tom Dinges, who also believes the supply constraints had an impact on Apple's sales numbers, stated that the bottleneck for the component parts may end soon. In his view, Apple has "a problem that everybody else would love to have." He highlights that Apple is its suppliers' "best customer," and Apple has made sure that it receives the parts first from its producers. As a result, "Apple is going to get a disproportionate amount of the available supply."

Barclays projects that Apple will sell 45.2 million iPhones in the December quarter and 170.7 million through next September.

Apple faces potential bottlenecks at other points in its supply chain as well. According to Bloomberg, baseband chips, which allow phones to connect to Long Term Evolution (or LTE) networks, have not been produced as quickly as originally expected. Qualcomm (NASDAQ:QCOM), the largest chip maker for mobile phones, has so far underdelivered the amount of baseband chips Apple requested because it has switched to a new manufacturing process to build them. CEO of IFixit Kyle Wiens said that Qualcomm "may not be able to meet Apple's order."

Twitter: @ChrisWitrak
No positions in stocks mentioned.
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