Contending with seemingly insatiable demand for its new iPad 2, Apple is pondering paying higher prices for touch panel components, according to a report from DigiTimes on Wednesday. Manufacturers in Taiwan claim Apple is more open to certain price hikes during negotiations as the California company tries to secure a sufficient supply of components for its popular touchscreen products.
Higher component prices, in the short term, will shrink Apple's gross margins on three of its hottest selling products: the iPad, iPhone and iPod touch. But securing adequate availability of touch panels should help the company relieve some of the constraints in its global supply chain. Such a deal would also put pressure on other consumer electronics companies to pay more for the components they need to build competing tablet computers and smartphones.
Apple currently faces incredible pressure from consumers and shareholders to address bottlenecks in the supply chain for its successful families of touch panel devices. Lead times for the new iPad 2 ballooned to 4–5 weeks in its first few days on the US market, and the tablet goes on sale to a broader, global market this Friday. Apple reportedly expects to ship 40 million iPads in 2011. The company is also expected to launch its next generation iPhone later this year.
The earthquake and tsunami that struck Japan earlier this month further fueled concerns over possible touch panel supply shortages. According to AppleInsider, a recent report suggested Foxconn, Apple's manufacturing partner, has only two or three weeks' worth of touch panels stockpiled. If the situation in Japan doesn't improve, Foxconn could deplete its stock of touch panel components.
Despite these concerns, DigiTimes believes Apple is well positioned to weather a shortage of touch panels. Apple has already booked an estimated 60 percent of the world's touch panel output capacity. As the global market leader in touchscreen devices, Apple will continue to control the lion's share of the world's touch panel supply and enjoy lower component pricing than its competition. "Supply for touch panel[s]...will be more smooth for Apple," concluded DigiTimes.