Timothy Cook, Apple’s chief of operations and a temporary Steve Jobs replacement, called iPad “the mother of all backlogs” in a recent conference call with Wall Street analysts. He was defending sales of just 4.69 million iPads during fiscal 2011 second quarter, which is below the 6-7 million consensus and the 7.33 million units shipped during the December quarter, even though the new iPad 2 was only on sale during the quarter’s last two weeks. Low iPad numbers are blamed on supply and production issues amid the iPad 2 manufacturing ramp up. How’s Apple going to fix those problems?
According to their 10-Q filing with the US Securities and Exchange Commission, the company will spend an astounding $11 billion dollars on components in the March quarter, a notable increase over the $7.9 billion in purchase commitments from the December quarter. What’s Apple going to buy with all that cash?
It is no secret Apple’s using its vast cash hoard to block out competitors. Component purchases usually cover Apple’s needs for up to five months ahead. Long-term supply deals, the filing reveals, are worth about $2 billion and come on top of the secret $3.9 billion long-term deal for components. Now, conventional wisdom has it that the 39 percent sequential increase in purchase commitments might signal greater quantities of iPads and iPhones. However, with the rumors of iPhone 5 scheduled for a Fall or end of year release, it’s more likely that Apple is securing components to build more iPad 2s as demand and supply are not in balance yet.
Apple will this week bring iPad 2 to thirteen new countries, with more to follow in the coming weeks. Their business in the Asia-Pacific region grew 151 percent to one quarter of total quarterly revenue. With China being Apple’s next success story, maybe they’re gearing up for the 1.4 billion market? We also know Apple’s North Carolina facility is due to become operational this Spring so maybe the increase is somehow related to Apple’s super datacenter or a rumored storage purchase?
Asymco’s Horace Dediu projected a 65 percent revenue growth for the March quarter (versus Apple’s 47 percent guidance) based on sales of 14.7 million iPhones and 9.8 million iPads. He justified a 200 percent annual increase in iPad shipments on belief that “the ramp for the iPad 2 may get sorted out”. Dediu also thinks a part of Apple’s $6.2 billion increase in cash reserves will go towards capital expenditures such as new manufacturing plants (Brazil, anyone).
When challenged on a conference call to shed more light on iPad 2 shipments, Cook said this:
I can tell you that I’m extremely pleased with the progress of the manufacturing ramp And so I’m very confident that we can produce a very large number of iPads for the quarter.
While saying Apple does not anticipate any material impact to their component supply or cost in the March quarter, Cook cautioned everyone that “the situation remains unpredictable”. Steve Jobs was also quoted in Apple’s earnings release as saying that “we will continue to innovate on all fronts throughout the remainder of the year”, which indicates a number of product refreshes requiring component purchases.
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