Apple iPad Shortage – Limited Retina Display to Blame?

Brokerage firm Sterne Agee and analyst Shaw Wu disprove some investor concern last Wednesday that there is a decreasing demand for Apple’s new iPad. He pointed out that there is a strong and continuous interest with the latest tablet. However, there is another factor why shipment of device was constrained.

Apple’s Limited Supply of the new iPad

According to Wu, the reason behind constrained shipment of Apple’s new iPad is its high-definition Retina Display. But it is expected that the situation will improve in the coming months, as new suppliers and production lines were added. Samsung is believed to be the major supplier of Retina Displays for the latest tablet, while Sharp and LG have started shipping in small volume.

The limited supply of the high-definition screen is possibly due to the decreased work hours of Foxconn employees. While some workers prefer to work over time, the manufacturing firm is now “conforming to more sound labor practices” following Fair Labor Association’s review last month.

The Fair Labor Association’s Review

Last March, FLA conducted an investigation at three Foxconn factories and found out that the manufacturing firm committed a number of violations. According to FLA CEO and President Auret van Heerden:

“The Fair Labor Association gave Apple’s largest supplier the equivalent of full-body scan through 3,000 staff hours investigating three of its factories and surveying more than 35,000 workers. Apple and its supplier Foxconn have agreed to our prescriptions and we will verify progress and report publicly.”

The non-profit organization found out that during peak production period in the last 12 months, Foxconn employees were working more than the legally allowed 60 hours per week. There were also reports that their people have worked seven days in a row, and without taking the mandated 24-hour off.

The manufacturing firm, on the other hand, promised to adhere to the Chinese Law and FLA’s code. Part of their remedy is to decrease the working hours to 49 hours per week, including overtime. They will also reduce the monthly overtime from 80 to 36 hours.

Ironically, Foxconn employees opt to work longer shifts for higher salary. Thus, Foxconn also agreed to create a better compensation package to make up for the losses that workers would face due to decreased work hours.

Increased Sales Estimate for Apple

Because the production of the new iPad has been slowed down by other factors and not by demand, Wu increased his sales estimate for Apple. He deems that the Cupertino-based company could’ve sold 12.3 million iPad units last quarter.

Furthermore, from 60 million, he is seeing that the company will ship a total of 63 million tablets by the end of the year. Hence, Sterne Agee’s price target for AAPL increased for $740 to $750.

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