Last week I visited an Apple Store with a friend who happens to be in product planning for a major retailer. He asked if they had any iPad2 units available. The clerk scoffed and explained that they have a line form every morning in front of the store to claim units delivered in the previous day’s shipment. When my friend inquired as to when they would have enough supply on hand so that consumers didn’t have to wait in lines as if buying tickets for an Elvis concert circa 1966, the reply was that demand is so great they don’t foresee resolving the situation any time soon. Rather than a tone of remorse from the clerk, there was an element of pride in the daily routine some customers were apparently willing to endure.
Meanwhile, today Apple announced its quarterly earnings and the numbers were solid. Second quarter net income was $5.99 billion, or $6.40 a share, up from $3.07 billion, or $3.33 a share in the same period last year. Total revenue for the quarter was $24.67 billion, an 83 percent jump compared to $13.50 billion in the year-ago quarter. However, the numbers were clearly truncated because of iPad2 supply problems. While they sold 4.7 million iPad units that figure represents 2.6 million fewer units sold in the previous quarter. The odd element of the investor update however, was the lack of detail as to why the iPad2 has such significant supply problems.
When pressed by analysts on this issue, Tim Cook the Apple COO responded by explaining: The company is below its channel inventory target range, but they do not attribute iPad supply issues to the Japan tsunami, and Cook is not predicting any material supply or cost impact during fiscal quarter three. However, he did say that the situation is uncertain.
So, why was Apple unable to meet demand for iPads during the quarter? The company said complications with planning and product transitions had something to do with the matter, but did not disclose specific reasons.
I am a big fan of Apple and their marketing magic. Their product delivery is usually executed with brilliance. However, this latest lack of supply is nothing short of failure. It demonstrates one of a number of things or all of them combined:
- poor product forecasting (getting a sense of demand is what analysts in sophisticated retailers do and had better do well)
- terrible supply-chain management
- who the heck knows because they aren’t elaborating