Last week Apple blew away (nearly) all expectations for fiscal Q3 iPad sales. I hate saying, “Apple always exceeds expectations” because that just suggests estimates are consistently and systemically biased downward but they did far exceed fiscal Q3 iPad estimates after not accomplishing that feat in fiscal Q2. Analysts estimates for fiscal Q3 iPad sales ranged from 6 million to 9.5 million with an average estimate of roughly 8 million. Apple ended-up shipped 9.25 million iPads during the quarter.
A recent GigaOm article implicitly suggests the strong growth seen in fiscal Q3 is a result of supply chain dynamics:
” Apple admitted earlier this year that it couldn’t make iPad 2s fast enough to keep up with demand. Now Apple is still selling “every iPad 2 it makes,” but it also said it was able to make more iPads 2s during the most recent quarter than it did in the same period a year ago. So while demand is still ahead of supply (“Sales of the iPad 2 have been absolutely a frenzy,” said Cook), they’re getting closer to meeting it. Cook went as far as to say that in some markets they had actually caught up and were able to be in some sort of an equilibrium with demand and supply. He did not, however, expand on which markets.”
In other words, Apple out-clipped expectations because the supply chain finally caught up. This has been common rhetoric throughout the lifespan of iPads. Demand has been strong, supply has failed to keep up, and unit volume would be much higher if supply could have kept up with demand. Certainly this rhetoric was made by many after fiscal Q2 iPad sales failed to meet expectations. After selling 7.33M in fiscal Q1 (which includes the ever important holiday season) most analysts (myself excluded) expected sequential growth for fiscal Q2. When Apple shipped only 4.69M in the quarter, many analysts blamed a lack of supply.
But would unit volume really higher had supply been more robust? Does this logic make sense? I don’t think it does.
There has definitely been strong demand for the iPad. This was true for the first generation as well as the second generation (iPad2) models. Throughout the last year+ buyers have on occasion had to wait to receive their iPad. At times, they even had to wait 2-3 weeks for their purchase to ship. Others, wanting a specific model, opted to buy a different model so they wouldn’t have to wait. Some bought a 3G model or a black model or a 64GB model even though they wanted something else – simply so they wouldn’t have to wait.
So yes its true supply hasn’t perfectly kept up with demand. This is true with any successful product – especially a nascent device. Its even possible that some delayed making any purchase until they were able to immediately get what they wanted. But I doubt we had millions of potential customers delaying their purchase. It seems to defy logic to suggest some waited to buy an iPad because they didn’t want to wait 2-3 weeks for it to arrive. In order for fiscal Q2 to show sequential growth, Apple would have needed to have sold an additional 3M+ iPads in the quarter. Its tough to believe 3M people opted to delay this purchase because they didn’t want to wait. Moreover, evidence suggests delays of 2-3 weeks at most. 3M+ individuals waiting in line would have resulted in months of delays (remember they only sold 4.69M during the entire quarter).
Another inconsistency. In the same conference call Apple discussed supply shortages, it also discussed opening new geographic markets to iPad sales. When supply is extremely curtailed, OEMs typically delay opening new geographic markets.
In short, I don’t buy the argument suggesting supply “shortages” are driving these quarterly results. Calendar Q1 (Apple’s fiscal Q2) is a seasonally slow period – especially for new technologies. Strong growth in Apple’s fiscal Q3 is a result of the natural laws of adoption. More individuals have been exposed to the technology and they’ve now had multiple exposure points. More markets are now open to iPad sales. Supply constraints have perhaps influenced results on the margin, but they aren’t driving the uptake of iPads.
