G5 Processor Shortage Still Holding Apple Back

When Apple (Nasdaq: AAPL) unveiled its new iMac G5, executives claimed the display was so thin that people would wonder "where did the computer go?" But nearly six weeks after the product launch, many consumers are left wondering "where is the new model?"

That's because supplies of G5 processors from IBM (NYSE: IBM) are still lagging behind demand. Apple execs reported progress in the catch up game during the company's earnings conference call earlier this week, but predicted the problem might not be solved until sometime later this quarter.

"We are extremely unhappy with these events," Apple Chief Financial Officer Peter Oppenheimer said during the conference call. However, he added, "We believe IBM has placed enormous resources to resolve this situation."

While it's difficult to quantify the impact of the processor shortage, it is clear that Apple is taking a hit on G5 system sales. The Power Mac G5 desktop model was released on June 9, and the G5 iMac was released on August 31, after multiple delays due to a shortage of the G5 processors. Generally, unit sales in the quarter ending September 31 were down 6 percent from the previous quarter and 23 percent from a year ago.

iMac Revenue Down

Meanwhile, iMac revenue was down 8 percent from the previous quarter and a whopping 23 percent from the year-ago period. Apple sold 156,000 G5 Power Mac systems in its fourth fiscal quarter, down 10 percent from the previous quarter and 29 percent from the year-ago period.

All fingers seem to be pointing at IBM for the processor delays. IBM spokesperson Christopher Andrews declined to comment on the issue. But some analysts point to Apple's very core as the underlying source of the problem.

"One of the down sides of Apple's business model, at least on the PC side, has always been its heavy use of products specific to the Mac," Stephen Baker, director of industry analysis at the NPD Group, told MacNewsWorld. "While that has changed some over time, there are still issues with either specific suppliers or an inability to get to the economies of scale to get prices down."

With the critical holiday season looming, will Apple do something to boost the supply of G5 processors? Apple could not immediately be reached for comment, but analysts said that the computer maker needs to consider its options.

Reliable Supply

"Without question, at some point Apple has to do something to assure themselves a reliable supply of components," Baker said.

For now, Apple is sticking with its old standby, IBM, despite ongoing problems with meeting demand.

"In August, we shipped more G5 systems than we did in July and in September we shipped twice as many as the combined total of July and August," said Tim Cook, Apple's executive vice president of world wide sales and operations.

"That leaves me very encouraged about being able to reach a supply/demand balance at a point during the quarter on every system that we ship with a G5 in it, with the possible exception of the 2.5 GHz Power Mac," Cook asserted.