Apple Buys Up Touchscreens, Limiting Supply for Rivals

iPad rivals may find tablet touchscreens hard to get, since Apple reportedly has locked up 60 percent of this year's output. Apple reportedly could have sold more iPads last year if it could have gotten more touchscreens, and it won't let that happen with the iPad 2. An analyst said supply-chain management is critical for consumer devices.

To keep up with soaring sales of Apple's hit iPad tablet, competitors will have to do more than just design and market a good rival. A report Friday said they may face problems building them.
It's no secret that Apple, which sold more than 14 million iPads last year and could see sales of more than 45 million in 2011, hedges its bets by ordering components it needs in massive quantities, ahead of demand.
Out of Touch
Now Taiwan-based DigiTimes, citing sources from both component and computer manufacturers, says Apple has a grip on 60 percent of this year's expected output of capacitive touchscreens used in tablets. Unless capacity increases, that could put a strain on other companies' goals for the year.
"Touch panels are currently suffering the most serious shortage due to Apple holding control over the capacity of major touch-panel makers such as Wintek and TPK, and with U.S.-based RIM, Motorola and Hewlett-Packard also competing for related components, second-tier players are already out of the game," sources told the industry journal. (Research In Motion, maker of BlackBerry devices, is actually based in Waterloo, Ontario, Canada.)
News of Apple buying up LCD and OLED touchscreens preceded the release of the iPad at the 2010 Consumer Electronics Show, fueling rumors about the forthcoming tablet. Insiders say Apple could have sold even more iPads last year if it could have had more touchscreens and won't allow that to happen this year as it gets ready to release the second generation of the device.
Touchscreen shortages also reportedly affected the supply of iPhones when the fourth-generation model was released last June.
Pattern of Investment
"This follows a pattern that Apple has established," said Avi Greengart, consumer-devices analyst for Current Analysis. "When it sees a core component it needs, it places a big financial bet on it to lock up supply."
Greengart noted that Apple in 2004 invested in a huge supply of solid-state flash memory chips when it introduced the third version of its iPod music player. Previous versions used hard drives. In 2009 it was reported that Apple bought up nearly all of Samsung's NAND output for the first quarter.
"Supply-chain management of core components is absolutely a key factor in consumer devices," said Greengart, noting that last year HTC -- the maker of Verizon's most popular Android phone, the Droid Incredible -- was unable to get enough touchscreens from the division of Samsung that makes them, and turned instead to Sony for its Super LCD display technology. Companies that make touchscreens can't easily ramp up production to meet demand, since that would mean adding facilities and personnel -- long-term investments in a technology that is subject to rapid change and obsolescence.
Samsung makes its own displays, the AMOLED, which gives the company a competitive advantage. So it may sell fewer of them this year to ensure its own supply, and may not sell them to rivals.
Greengart said Finland-based Nokia is a good example of a company that exercises supply-chain management. "They don't make any components themselves, but they are probably the only company that can make something on the order of 400 million devices a year," he said.