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iPad: How 2011 will be like 2005

23 December 2010 3,657 views 5 Comments

Apple provides excellent build quality, great ease-of-use and industry-best customer service. However, these factors don’t fully account for the company’s ability to dominate markets and profitability — hardball business tactics play a critical role.

Back in 2005 when there was still the notion of possibility in the mp3 player market, Creative Technology complained bitterly that Apple’s acquisitive Flash memory supply contracts created a shortage of the vital chips. Moreover, because the mothership was buying so much, they were getting volume deals and selling at prices no competitor could match — fast forward to the present and the Creative is little more than an historical footnote.

Now consider a China Economic News Service (CENS, Taiwan) report predicting an LED backlight shortage:

“In addition to Apple’s hot-selling iPad, which [uses] LEDs supplied by Japan’s Nichia and Toyoda Gosei, a great deal of tablets developed by other global PC vendors are scheduled for launch starting in early 2011, and most of which are built with Taiwan-made LEDs as backlights, according to [Frank] Chien [chairman of Formosa Epitaxy]. Therefore, he said, it makes sense that shortages of LED chips, especially higher-end models, are very likely to loom then and linger throughout the year.

Why is this good news for Apple? Well, Taiwan’s ever leaky supply chain has told us that the mothership plans to ship in the neighborhood of 40-million iPads next year — about three times this year’s likely total. So, yeah, Apple’s the source of the shortage.

No, OLED (organic light emitting diode) displays do not require LED backlights. Nevertheless, OLED supplies are also highly constrained, making this type of display a practically unavailable close substitute.

Like the Flash shortages circa 2005, today’s constrained mobile device display market will hamper competitors in terms of what products, how many and the prices they can offer.

In fact, we’re already seeing this. For example, the 7-inch Samsung Galaxy Tab actually costs more and does less than a 9.7-inch iPad.

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Additionally, Apple is the world’s single largest consumer of Flash memory, among the most expensive components in any mobile device, which also gives the company huge cost and supply chain advantages. And, how about Apple’s buying power vis-a-vis batteries, connectors, networking chips, antennas and all of the other things that go into mobile devices (and Apple TVs and MacBooks), hmm?

Whereas the battle for tablet dominance is only now just getting started, it’s seems likely if not certain — just like 2005 — that Apple’s already won the war…

What’s your take?

Microsoft Office for Mac 2011

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