The End of Apple’s Ability to Surprise?

Is it possible that the effort needed by Apple’s supply chain has ended any ability for Apple to release a surprise product?

It certainly looks that way.

Five years ago, Apple was a much smaller company in terms of the number of products it develops and ships. Sure there were the varieties of iPods and Macs but that was it. The last existing product lineups that had genuine surprises from Apple were probably the MacBook Air and iPad Nano (replacing the very popular iPod Mini).

Can Apple still spring a surprise of a product that has not been sent to production? Sure, it can show a product/final prototype like the original iPhone or iPad and then announce sales in 60 days. That type of product can still be a surprise. The alleged new Mac product line could be that kind of surprise like the old Apple. An integrated Apple branded TV could be that next kind of surprise, unveiled then launched 60 to 90 days later.

But for the next gen  iPad/iPhone/and even the MacBooks, Apple is shipping in such large quantities that the supply chain/development process has to involve so many moving parts/third party vendors that keeping total secrecy is going to be nigh impossible.

For the iPhone in particular, Apple looks like it’s going to need upwards of 20 million phones a quarter maybe as many as 10 million a month, and cannot logistically pull off shutting down volume of an older version and ramping up production of a new iphone without word of those changes spreading throughout contacts in Taiwan/China. In addition, as the iPhone 4S launch taught us, spare parts are going to leak out prior to the unveiling. The supply chain will have to start sending out various repair parts samples before launch. The repair business for these products has become too big and too important. If there is a big screen iPhone 5 coming next year, our first concrete sign will be replacement back cover or a replacement LCD unit.

For the iPad 3, the production of that many retina display quality LCD panels is not going to go unnoticed. We also can guess based on the recent iPhone 4s launch that Apple is going to keep the iPad 2 in production at a lower price point even after the iPad 3 launches (Apple didn’t do that for the iPad 2 launch, and sales numbers for the original iPad product reflected the ramp down and ramp up problems). Two production lines churning out different iPad versions is going to create some noise, enough that news sites/analysts are going to be able to track down the impact.

Mac volume especially for the MacBook lineup is getting close to that kind of volume. Mac volume if current growth trends continue will be over 5 million a quarter, and already sees the impact of customers delaying purchases waiting for the hardware refresh. For the recent MacBook Air launch, Apple was able to build up inventory before release due to the coordination of launching the MacBook Air with OS X Lion. Again, in these kinds of volumes, the scaling back of production and the ramping up of the new product line is going to create noise.

Apple cannot do the “prototype unveiling/product launches 60 days” with the iPad or iPhone or risk hurting sales for almost 2 quarters due to the demand drop in the quarter right after the announcement and then the inability to meet the pent up demand in the following quarter after launch. That potential problem is only going to increase as the installed base (upgrade base) continues to get larger and larger. The analysts all thought that iPad sales were slowing down in February-March (calendar Q1) when it was more a case of customers waiting on the new product and then not enough iPad 2 inventory to meet that demand in calendar Q2 (April thru June). Apple may in the future have to pre-announce a price drop (letting customers know a new model is coming) and take the hit in margin something it has been reluctant to do especially for the iPhone. But a price drop prior to the announcement and mass availability of the new iPhone 5 could keep sales going of the all iPhone variants with no real dip seen at launch.

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