While Reuters reported earlier today that Taiwan's Hon Hai was finding it difficult to cope with the massive demand for Apple's iPhones, another report published today frames the problem in an altogether different light that could pose larger problems for Apple meeting iPhone demand for the holidays.
Reuters report stated that Foxconn Chairman Terry Gou told reporters today that "It's not easy to make the iPhones. We are falling short of meeting the huge demand." That statement is fully supported by problems that we first reported on in early October concerning quality control and a lack of Hon Hai employee training.
The Wall Street Journal (WSJ) supported this position as well by stating that some quality standards still couldn't be met due to design-related production difficulties. But then the report added a little interesting twist. According to the WSJ, supply-chain problems have led to a long wait for the iPhone 5 since the device's late-September launch, analysts said. The scarcity of the iPhones have been weighing on Apple's share price as well, as investors are concerned Apple may not be able to meet consumer demand in the near future, weighing on its earnings.
The point about the problem flipping from being one related to a design problem to one being supply-chain related caught my eye. While Apple was recently ranked number one for Supply Chain Management for the fifth consecutive year by Gartner, a new Korean report posted today seemed to think that recent moves by Apple against Samsung as a supplier could backfire against them.
A leading, yet unnamed research firm in Korea that was quoted in this report insisted that Apple's new diversification strategy would have minor impact on Samsung while putting Apple's supply chain at risk of deteriorating. Specifically, a fund manager from a European investment bank in Seoul stated the following in the report:
"By excluding Samsung in its parts-sourcing channels, the delivery timing for the new mini iPad sold via Apple's online stores was delayed two weeks, while the delivery of its fourth-generation iPad were also delayed one week as initial volumes of the devices were small.
Supply remains very tight even in its strategic smartphone, the iPhone 5. The exclusion of Samsung in displays and other parts is one crucial reason. Apple doesn't want to see a steep fall in its stock price and that means the company is readying itself to pay more to buy Samsung parts."
The Korean Times article appears to fill in some of the blanks left in the Wall Street Journal's report claiming that the iPhone schedule is under pressure due to a supply-chain problem and not necessarily one relating to design issues.
One problem appears to be real while the other may have been manufactured to mask the real problem. The question is which is the real problem. If it actually turns out to be a supply-chain problem rather than a design problem, then it could materially affect supply for the holiday season and dampen Apple's financials in the New Year.
Why or why do I think that Samsung is behind this current problem with the iPhone 5's delays? Then again, it just might have been Apple shooting themselves in the foot. Time will tell.