New components and Apple's eviction of Samsung impacts iPhone 5 supply

Good news: The iPhone 5 is selling in record-setting quantities. Bad news: Apple [AAPL], or Foxconn, appear to be facing problems raising production to meet demand, while the move to new component manufacturers to replace Samsung is also creating some short-term problems for the iPad company.

[ABOVE: Yes I know this is an Apple promo ad, but while you watch it consider the challenges both the design and hardware teams faced when designing the device: it hasn't just been about delivering technology improvements, but also required sourcing new suppliers to replace Samsung. Perhaps supply constraints are inevitable.]

New components, new suppliers

That Apple’s iPhone 5 is constrained is no great surprise. Similar constraints follow each release. This time -- as predicted before the iPhone 5 launch -- it appears component and production problems are at fault. One month since launch and the company’s online retail store still warns of a 3-4 week wait for all its configurations.

The situation’s driving Wall Street wild as investors consider which rocky-seeming tech stock to pump their spare cash into, after all, even Google’s on a fall as recession hits the ads market. However, it is autumn in the Northern Hemisphere, so perhaps people are looking at the rain rather than considering the russet beauty of the trees. The constraints are one thing, but Apple’s still selling its new device in record amounts -- and has reduced its dependency on hated enemy, Samsung. 

Apple’s made some significant changes in this release. 

“The iPhone 5 exhibits a great deal of similarity to the iPhone 4S in terms of component suppliers,” said Andrew Rassweiler, senior principal analyst, teardown services, for IHS. “But beyond this superficial resemblance, there are some critical changes to product design and parts that enable major upgrades that improve user experience.” 

“In just its first three days of availability, iPhone 5 U.S. online pre-orders reached 96 percent of the number of iPhone 4S online sales during the entire first month of its release! To say the iPhone 5 was heavily anticipated by Apple fans would be an understatement,” Comscore’s Sarah Radwanick wrote.

Initial reports suggested some iPhone 5's were easily scratched, Apple has already moved to address this. “Senior Apple managers allegedly instructed Foxconn executives to tighten quality control measures shortly after the iPhone 5 launched in September,” said AppleInsider.

Design solutions

Display production has proved a problem with manufacturers including Japan Display, LG and Sharp experiencing production problems in the single layer glass, which combines touch sensors and LCDs in the same layer. "Every time there's a new technology there's a bit of a learning curve before you can ramp production," Sterne Agee analysts Shaw Wu said. "There's a bunch of new components here." 

“There are myriad upgrades and enhancements to virtually every component and subsystem in the iPhone 5,” said iSuppli. For example, Apple is using a new 4G chip from Qualcomm. "It's a combination of these new components that's causing the supply constraints,” Wu warned.

Foxconn this week confirmed iPhone 5 production is challenging, calling it: “The most difficult device that Foxconn has ever assembled.” 

“To make it light and thin, the design is very complicated,” the report added. “It takes time to learn how to make this new device. Practice makes perfect. Our productivity has been improving day by day." Specifically, Foxconn revealed the new device uses a coating material that’s easier to scratch, saying: “It’s always hard to satisfy both aesthetic and practical needs.”

Wu is missing another reason for these shortages. Apple’s move to abandon enemy Samsung from its supply chain as much as possible has led it to begin relationships with new suppliers: SanDisk is providing flash memory; Elpida is offering up the SDRAM and the battery is now manufactured by Amperex Technology. 

Apple’s eviction of Samsung is creating new problems -- problems which may impact future products. A Digitimes report earlier this month claimed similar production challenges are being experienced on the 13-inch MacBook Pro with Retina Display production lines, the iMac production line and also impacting manufacturing of next week’s iPad mini/nano/air/iBook.

It's a similar set of problems in hardware production as met by Apple as a result of its decision to abandon Google for Maps. Apple Maps may not yet be a Google Maps replacement, but it will be -- and the decision will have an impact on Google's already fading bottom line.

Apple is working hard to improve Maps. In the same way, as Foxconn refines its production process and Apple’s new component suppliers improve their own, iPhone supply constraints should evaporate. This means that Apple will no longer be at all dependent on its Korean rival, nor on Google, the company which -- through accident or design -- has created a series of unexpected challenges for Cupertino.

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Jonny Evans is an independent journalist/blogger who first got online in 1993 and began writing about Apple in 1999. He's author of Computerworld's AppleHolic blog and also writes for others in the US, UK and Europe. Winner of an Azbee Award in 2010, Jonny has no shares in any technology company, enjoys new and disruptive technology and likes music almost as much as he likes his large and shiny dog.