While several factors are likely contributing to the situation, many analysts pinpoint the constricted supply of flat panels -- the complex silicon-and-glass sheet that is at the heart of flat monitors and notebook displays. Although the market was awash in cheap panels last year, the situation reversed in late 2001. Computer and monitor makers now have to place orders 60 or more days in advance to get panels, say sources within the panel industry, and panel makers can't increase shipments for one PC maker without aggravating another valued client. Panel prices are also rising. The iMac comes with a built-in flat panel, so a shortage means computers can't be shipped at all. Apple's situation is exacerbated because the panels incorporated in the new iMac must meet slightly higher technical specifications, so substitutions are difficult to find, sources said. "There's not much (factory) capacity coming on in the next year, so we will see demand increase quicker than supply," said Barry Young, vice president of Display Search. In addition, Apple may have underestimated demand for its latest product, which -- even by Apple standards -- has been surrounded by tremendous hype. Time magazine featured the unit on its cover on the day Steve Jobs showed off the product. Although the shortage probably won't dim the excitement of the Mac faithful, it could hurt the company's chances of winning over converts, especially as PCs get cheaper as time goes on. "This speaks to Apple's continuing problem of hyping and introducing a product before they're really ready to deliver," said Technology Business Research analyst Tim Deal. "Their inability to fill orders is the kind of thing that's going to turn a potential Wintel switcher off." Still, for the next few months, the company will be in the somewhat enviable situation of being able to sell everything people can get their hands on, some analysts say. The LCD shortage derives from the explosive growth in demand for desktop flat-panel monitors. Orders for LCD monitors (which incorporate a flat panel) more than doubled in 2001 and will probably roughly double again this year, according to statistics from Stanford Resources. Price increases and shortages will become a feature of the landscape as a result. IDC analyst Roger Kay said he did not expect the supply shortage to abate before third quarter, but others don't see relief until next year. ARS analyst Sam Bhavnani noted that shortages are worst for 15-inch panels -- the same size used in the new iMac. "Apple should have checked their supply beforehand," he said. Bhavnani warned that Apple would be harder hit than most other companies because "they use a very high-quality panel". Gateway is also experiencing a supply crunch. The Poway, California-based PC maker is quoting four-week lead times for delivery of its Profile 3 computer, which also incorporates a flat-panel monitor. Questions for the quarter
Many financial analysts had predicted Apple would ship more than 200,000 new iMacs during its second fiscal quarter, which ends 31 March. But it is now uncertain how much of a backlog the company will have to carry over into the next quarter. Still, most remained upbeat. Apple has never specified how many it plans to ship. Gerard Klauer Mattison analyst David Bailey said it is too early to say whether Apple can meet all outstanding orders by the end of the quarter. But he emphasised that at this point, he is comfortable with Apple's handling of the iMac launch. It's also a long-term project, he said, adding that the new iMac "is not only important for (Apple's) results for this quarter but the entire calendar year". In a research note issued last week, though, Merrill Lynch analyst Steve Fortuna warned that production problems in Taiwan had potentially reduced the number of units to a trickle: 5,000 in January and an estimated 5,000 to 10,000 in February. Some sources close to Apple have said that these estimates are egregiously low, however. "Our forecast for the (current) quarter calls for 200,000 units, which would mean a lot of units need to be produced in March," Fortuna said. Added Charles Wolf, an analyst at Needham & Co., "Given the company's not talking, I can't say whether they're hitting an implicit production target." In January, Wolf forecast that in the quarter Apple would ship about 125,000 of the old globular iMacs and 200,000 of the new ones -- 100,000 of the high-end, 75,000 of the midrange and 25,000 of the entry-level models. This week, he said that orders of the top-of-the-line iMac, which sports a DVD recording drive, would appear to be at least 50,000 above his projections, creating a backlog. Unless Apple seriously missed analysts' earnings projection, though, Wolf didn't see a material problem with shareholders even if Apple can't meet demand before the quarter's end. "The market doesn't give a damn if they end up the quarter and get on the phone 16 April and say they have a backlog of 100,000 units," he said. "The stock is not going to be penalised." For its part, Apple has said it expects to be back-ordered during the quarter and has been shipping units in by plane from Taiwan to meet orders, faster than the cheaper and more typical method of delivering computers by cargo ship. PC offensive undermined?
But the product delays have created a secondary problem that could undermine Apple's Windows offensive. In terms of pricing, Apple is already falling behind its competitors because of the relentless gravity of discounts in the PC world. When Apple first announced its three new iMacs in January, the prices were roughly equal to PC-flat panel combos available on the market. Two months later, Apple's products cost $50 to $300 more. Gateway's PCs provide the starkest example. The company sells a PC that competes almost directly with Apple's budget iMac. The 500SE desktop comes with a 1.6GHz Pentium 4, 128MB of SDRAM, a 20GB hard drive, a CD-RW, a floppy drive and a similar graphics chip. Gateway sells it for $999 in the US, or $300 less than the $1,299 entry-level iMac. Similarly, the Gateway 500S -- which comes with a 1.8GHz processor, a CD-RW/DVD-ROM, 256MB of double data rate (DDR) DRAM, a 15-inch flat panel and a 40GB hard drive -- goes for $1,199, again $300 less than the midrange iMac. Although pricing is important, it may not dent the enthusiasm for the iMac, at least not initially. The company attracts customers because of its hardware designs, operating system and strong customer loyalty. "There's a certain premium to be paid for the all-in-one design and the pivoting arm," said Stephen Baker, an analyst at NPD Intelect. "That arm is a pretty masterful piece of engineering...For the next few months, they will be able to sell as many as they can get their hands on." Nonetheless, the scope of a lingering shortage could begin to aggravate dealers and customers. CNET News.com contacted several dealers, who asked not to be identified. None had received more than four iMacs since Apple started shipping the high-end model on 28 January, and waiting lists were long. One Washington-area CompUSA had received only 19 high-end iMacs, 13 for Sunday's 20th anniversary sale. The situation at Apple stores is better, but not perfect yet. "There is that expectation when you go to Apple's brick-and-mortar presence that you're going to walk away with something as a customer," Deal said. "Your inability to do that is going to sour your experience, and that's the last thing Apple wants to do in its quest to generate new customers to the platform."
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