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The iPad's Growing Pains

By Richard Adhikari MacNewsWorld ECT News Network
Jul 28, 2010 5:00 AM PT

Sinking consumer confidence dragged down stocks Tuesday, and although the Dow Jones Industrial Average rose a dozen points, broader indexes slipped, and the number of stocks losing ground outnumbered those that picked up.

The iPad's Growing Pains

Apple was in the minority group, closing at US$264.08, or up $4.80, on Tuesday.

The last time it cleared the $260 mark was back in June.

Tuesday's rally may have been fueled by a slew of new and refreshed products Cupertino released.

Apple's Tuesday Launches

Apple refreshed its iMac and Mac Pro lines, and it unveiled its Magic Trackpad and a 27-inch Cinema Display on Tuesday.

More importantly, the Mac Pros, which can accommodate up to 12 cores, appear to signal the company's moving heavily into multicore devices.

Last year, Apple unveiled Grand Central Dispatch, a technology at the heart of Mac OS X which lets applications run on multicore systems.

Apple may add multicore processing capabilities to newer versions of the iPhone and iPad in the future, Carl Howe, director of anywhere consumer research at the Yankee Group, predicted.

If he's correct, Apple CEO Steve Jobs will have broken new ground yet again, leaving his competitors eating his dust. And when that happens, Apple stocks may take yet another leap.

Teflon Is Forever

The new iMacs are chock-full of new technologies. They run on the latest Intel Core i3, i5 and i7 processors, and they have discrete ATI Radeon graphics processors. They also have top-of-the-line IPS, or in-plane switching, LED screens.

However, recall that the iMacs Apple launched last year, which also used IPS screens, had screen problems, the most common of which was a yellowish tinge. Further, they had problems with graphics processing, which some attributed to the ATI processors in them.

If the new crop of iMacs has similar problems, it could further batter Apple's image, which took a beating for a while recently over the iPhone 4's antenna design. However, customer resentment over that issue seems to have faded with Apple's offer of free cases to iPhone purchasers, and perhaps Apple will retain its Teflon coating, shrugging off any ill-will generated by problems with the new iMac line -- if those problems even exist.

The iOS Madness

Apple's release of the iPad to nine new markets last Friday sent buyers into a frenzy.

Eager consumers in Singapore, Hong Kong and New Zealand are reported to have lined up for hours to buy the devices.

This Friday, Apple will launch the iPhone 4 in 17 more countries, possibly to an equally hot reception.

"Apple is selling everything it can make," Brian Marshall, an analyst at Gleacher, told MacNewsWorld.

He raised his estimates for Apple's calendar year 2011 earnings from about $76 billion to almost $82 billion.

The frenzy in Asia over iOS devices is particularly beneficial to Apple -- the bulk of the company's revenue now comes from overseas.

The Fly in the iPad Ointment

In fact, Apple might have been able to sell even more iPads than it's currently selling if not for one factor: a shortage in screens for the device.

Like the iMac, the iPad uses IPS screens. LG Display, which supplies the iPad screens, has announced it can't keep up with demand from Apple and that components are in short supply.

No matter -- Samsung has begun producing IPS screens for Apple, and Cupertino is also talking to yet another screen provider, Rhoda Alexander, director of monitor research at iSuppli, told MacNewsWorld.

However, the iPad screen problem may not be resolved until next year.

"The issue with the touchscreens has been the yield rates, which initially were less than 50 percent according to some sources," Alexander explained. "Any new entrants are going to struggle with the same yield issues."

Even if LG Display and other screen suppliers ramp up production, they won't be able to supply enough screens until at least the end of the year.

"We anticipate it will be year-end or early 2011 before they are able to achieve Apple's monthly goals," Alexander said. "Much of the production would occur in the final three months of the year, and the rest would be tied up in the pipeline, still at the factory, or wasted in the later device assembly."

Quality Gotta Be Number One

Quality issues are among the factors hindering the output of IPS screens for the iPad. The technology is relatively new, and as is the case with all new technologies and new production lines, there will be teething problems.

However, Apple, which prides itself on offering premium products at premium prices, can't accept products which don't meet its admittedly high expectations.

It has reportedly promoted Jeff Williams from vice president of operations to senior VP of Ops and given him the task of ensuring that products meet the highest quality standards.

"If you're going to have very tight specs for products, somebody has to enforce them," the Yankee Group's Howe pointed out. "When people don't meet those specs, Apple has to work with them to fix the problem."

One point to note is that Apple is not alone in having problems with screen supplies; HTC has been facing a similar situation. Samsung, which supplies the AMOLED screens for HTC's Droid Incredible smartphones, hasn't been able to keep up with demand, and HTC has reportedly switched to Super LCD screens from Sony.

Where Are Apple Sales Going?

If LG Display and other suppliers manage to meet Apple's demand for iPad screens by opening up new production lines, the rush of new screens won't be available until around year end, iSuppli's Alexander has predicted.

No matter; Apple won't lose too much by that.

"The delay may cost Apple some back-to-school sales and delay the launch of the iPad in some international markets, but by September or October, the problem should go away," Harry Wang, director of mobile and health research at Parks Associates, told MacNewsWorld.

Overall, Apple will see gross margins slip due to higher costs associated with the iPhone 4 and iPad and the impact of offering free Bumper cases to iPhone 4 purchasers, Gleacher's Marshall forecast.

The Bumper giveaway will reduce Apple's gross margins 100 basis points in September, but the situation will reverse in December, Marshall said.

"Apple is always seeking to lower bill-of-material costs on all of its products, especially the iPhone and iPad," Marshall explained.

Is "too much screen time" really a problem?
Yes -- smartphone addiction is ruining relationships.
Yes -- but primarily due to parents' failure to regulate kids' use.
Possibly -- long-term effects on health are not yet known.
Not really -- lack of self-discipline and good judgement are the problems.
No -- angst over "screen time" is just the latest overreaction to technology.
No -- what matters is the quality of content, not the time spent viewing it.
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