Despite iPad 2 Kinks, Apple to Be Top Tablet Shipper Through 2012, IHS Says

IHS iSuppli said it dropped its forecast for Apple iPad 2 shipments based on reports of manufacturing kinks, including LCD panel quality concerns and end-unit production shortfalls. The hitches caused IHS to downshift its sales forecasts for all 2011 iPad models by 9.1 percent to 39.7 million units, from the February forecast of 43.7 million.

Following a final tally of 15.1 million iPads shipped in 2010, IHS now predicts total iPad shipments will rise 163.3 percent in 2011, down from the 189.6 percent predicted in February. According to IHS, Apple is now on track to “significantly increase” its production volume in the second quarter but is still falling “substantially short of its target production goal for April.” IHS has nudged up its forecast for 2012 to 62.6 million units, from the previous forecast of 61.6 million.

The Q1 manufacturing challenges were unrelated to the Japan quake, according to IHS. Several components in the iPad 2 are manufactured in Japan and could have encountered supply problems, according to a March 17 IHS report, including NAND flash from Toshiba, DRAM made by Elpida Memory, an electronic compass from AKM Semiconductor, the touch screen overlay glass “likely from Asahi Glass” and the system battery from Apple Japan. But Apple “appears to have moved more aggressively” than competitors to mitigate potential supply chain disruptions, said Rhoda Alexander, director of monitor research at IHS. “Within days of the disaster, Apple had executives on the ground in Asia ensuring that its component supply chain would support iPad 2 shipment plans in 2011,” she said. Apple’s supply chain management is 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,” she said.

First-product-to-market advantage will keep Apple dominant in the tablet market because of the iPad’s advantages in content, marketing, supply, pricing and momentum, Alexander said. As the first tablet, the iPad continues to be “the standard by which other tablets are measured,” she said. Android-based tablet sales are slowly gaining momentum, but products released in the Q1 2011 “continue to fall short of reviewers’ expectations,” and application development lags “far behind Apple” she said. Alexander said the kind of “seamless access to movies, music and other content” that Apple provides “is still not in place for the competition.” Third-party app developers have focused on promoting their products as being “available for the iPad” and not for other tablets, but that will change as the tablet universe expands, she said.

Despite Apple’s reputation for selling premium products, its pricing strategy of discounting iPad 1 when the iPad 2 was released made it more difficult for competitors to build sales volume while retaining margin, she said. Regardless of Apple’s near-term advantages, though, its market share will decline during the next five years as competitors gain ground, losing its majority position in late 2012 or early 2013, according to IHS data. But, Alexander said, Apple’s lead is safe for now. “There is no sign yet of a serious opponent to challenge Apple’s place as the tablet market leader at least through 2015.” Apple didn’t comment.