Apple, RIM Face Parts Supply Challenge for New Tablets

Includes: AAPL, BBRY, GOOG
by: Alacra Pulse Check Blog

By Sheena Lee

Parts supply shortages are hitting tablet makers, and Research In Motion (RIMM) may be facing a delay of up to one month for its much talked about PlayBook device.

According to DigiTimes, a Taiwan based trade publication, the delay could very likely be Apple’s (NASDAQ:AAPL) doing. "Sources from touch screen panel makers also pointed out that PlayBook shipments were postponed due to a delay in software testing as well as shortage of touch panels because Apple already booked up most of the available capacity."

Brian White of Ticonderoga Securities said that Apple has been "aggressively attacking" the component situation in Japan following the earthquake and tsunami that struck the country. The iPhone maker reportedly sent executives to suppliers immediately to ensure adequate supply of components, and also began offering upfront cash payments.

However, RIM has been busy defending claims that short battery life were responsible for the delays, as well as their decision to include Google (NASDAQ:GOOG) Android support on the device, in addition to a host of others, such as Adobe Flash and AIR, said MacLife.

Mike Lazaridis, one of the chief executives of Research In Motion, also told the New York Times that investors are not appreciating the company’s profit and growth. "I don’t fully understand why there’s this negative sentiment, and I just don’t have the time to battle it. Because in the end, what I’ve learned is you’ve just got to prove it over and over and over."

The PlayBook maker is planning to roll out its own operating system for the new device and analysts said that the move will be extremely important for the company’s long-term success. Richard Tse of Cormark Securities in Toronto said the new software might prove to be as pivotal to RIM’s future as Apple’s decision to bring back Steven P. Jobs in 1996 and to base its future technology on software he developed at NeXT Computer.

As we noted in our March Research In Motion prognosis, many equity analysts have cut their price targets on the Waterloo, Ontario-based company after the firm posted a weaker than expected first quarter profit forecast. However, on average, analysts still expect an upside in the company’s stock in the year ahead.

Tavis McCourt, analyst at Morgan Keegan reiterated an Outperform rating on shares of Research in Motion and noted that the firm’s increase in purchase obligations was up 140% last fiscal year, compared to a year ago, which to McCourt indicates, "quite a vote of confidence in future sales." Citigroup’s Jim Suva repeated a Buy recommendation on the stock and an $80 price target.

However, RIM’s other chief executive Jim Balsillie admitted that "No other technology company other than Apple has successfully transitioned their platform," Balsillie told the Times. "It’s almost never done, and it’s way harder than you realize. This transition is where tech companies go to die."

Gartner analyst Carolina Milanesi said "It will take time and significant effort for RIM to attract developers and deliver a compelling ecosystem of applications and services around QNX to position it as a viable alternative to Apple or Android." She noted that "It will be mainly organizations that will be interested in RIM’s tablets because they either already have RIM’s infrastructure deployed or have stringent security requirements."

Although so far Apple looks like its been able to secure parts for its products, there "has been furious speculation about the condition of Apple’s supply chain in light of the earthquake and tsunami in Japan," said David Room on Seeking Alpha, warning investors to stay cautious heading into second quarter earnings. "Apple is allegedly absorbing the costs of the quake to maintain short-term supply, and most analysts are confident that Q2 is in the bag and that numbers due for release on April 20 will not be affected," he added.

Ben Wood, head of research at CCS Insight, said there continues to be widespread uncertainty about the Japanese situation. "We believe the shortages will start to bite in the third quarter, when we’ll get a clearer picture of who is most affected," said Wood.

Gartner said it expects 70 million media tablets to be sold this year and 108 million in 2012, compared with just 17.6 million in 2010. Apple will stay ahead in the market, but its share will gradually decline to 47 percent in 2015 from 69 percent this year, while Google’s share will rise to 39 percent from 20 percent now.

Source: Alacra Pulse, New York Times, Barrons, Apple Insider, MacLife, DigiTimes, Reuters, Seeking Alpha, Fortune.