iPad: How 2011 will be like 2005
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.
Death by 1,000 components
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?
If the demand for Apple products is there, then it’s just a natural course of events that Apple has a need for supply. The suppliers are happy to get Apple’s cash up-front and it means they don’t have to worry about having leftover inventory. It’s not as if Apple is hogging components just for the hell of making life miserable for other companies. They sell all the products they make and could sell even more if there were more components available. Microsoft made it nearly impossible for any computer company to compete with them for almost 30 years and there didn’t seem to be any complaints.
Consumers are willingly buying Apple products. There’s no coercion going on like Microsoft used in corporations. As far as flash memory is concerned, only Apple puts a lot of memory into their products internally. Most of the tech-geeks want to use external flash and memory cards for all their devices so there shouldn’t be any conflict at all with Android devices. All throughout business history, the larger corporations get the biggest component cost breaks due to the economies of buying in large amounts. So what is the big deal about it now? This is nothing unusual. All the iHater say that Apple is charging too much so they’ll just buy the cheaper products that suit their price range.
I’ve been arguing this for a while. Apple has advanced the game the game of economic warfare by attacking the competitors supply chain. With over 50 billion in cash and nearly 50 million iDevices fly off the shelf per/quarter they have the resources to corner the best prices while denying components and/or reasonable prices to the competition.
While many will argue that Android has reached iPhone volume, clearly it is no where near iOS volume when you take into account the iPod, Touch, iPhone, iPad and AppleTV who all share the same components; processors, flash ram, etc,. Most importantly, even if Android did reach iOS volume, it will never come from a single manufacture, thus no one will be able to compete with Apple on volume and thus pricing.
No matter how you cut it, Android’s openness work against it in this case. If Android can’t compel on price it will have a hard time competing against Apple’s massive eco-system, which not only includes hardware and software but retail and online stores. No one will have that kind of reach or level of service or unity of experience.
The age of the hardware features war is over, consumers won’t pay any attention to GHz, rather they will focus on software, service and most importantly easy-of-use via a complete eco-system. When so many talk about choice, the choice of a complete vertical solution is finally here.
Apple’s got three other huge advantages:
1) one operating system for all three mobile devices: ipod touch, iphone, iPAD. Just imagine the mess that faces Google going forward with more versions of Android than you can count out there. And the best part is that it’s spending all this money with hardly any returns on investment. Not like Apple making $25 Billion in revenues.
2) iTunes- one shop stopping for all your media.
3) A huge eco system of products.
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