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Apple 'stunned' by iProduct demand

'We do not create shortage for buzz'

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Apple doesn't have enough iPads and iPhone 4s to meet consumer demand, doesn't know when it will, and doesn't know how many more it needs.

And, no, it didn't create an artificial shortage of either device to hype up a buzz storm.

"We do not purposely create a shortage for buzz," Apple COO Tim Cook to analysts and reporters after announcing Cupertino's $15.7bn third fiscal quarter on Monday. "I'm not sure where that comes from, but that is not our objective. We would like to fill every customer's orders as quickly as we can."

But they can't.

After telling a questioner that Mac and iPod supplies weren't constrained, Cook said: "The iPad and the iPhone are significantly different. Both of these products — the iPad and specifically the iPhone 4 — we had backlog [of orders] at the end of last quarter that we were not able to fill, and currently we are still selling both of those products as fast as we can make them."

Not only are they selling every iPad and iPhone 4 they can produce, Cook said, they're "working around the clock" to address the supply/demand imbalance.

Well, Cook may not being working "around the clock" himself, but the workers in the Shenzhen, China mega-factories of Apple's main assembler, Foxconn, most certainly are — at least when they're not constrained by a shortage of parts.

But Cook wouldn't give details on exactly what was causing the shortages other than high demand. "I'm fairly confident that we will be able to increase [iPad manufacturing] capacity," he said. "It's not a situation where there's something profound that we can't eventually increase."

The iPhone's problems are more related to its newness, and the fact that its manufacturing process is not yet up to full speed. "We just started ramping it in June," he told his audience. "And we're still ramping and increasing volume. But again, there's not a specific thing that is an overwhelming gate. It's just a matter of getting up the ramp."

Not that Cook is all that upset by Apple's two newest products being in high demand. "In the scheme of things it's a good problem to have," he said. When asked if the inability to fill all orders immediately were a supply problem or a demand problem, Cook countered, chuckling: "High demand is never a problem."

That said, it appears that Apple was taken by surprise by the iPad's sales rate. "We went into the iPad thinking that planning a one-million-per-month capacity was a very bold move," Cook said. "A lot of the industry analysts were predicting that we would only sell somewhere around that number for the whole calendar year. As you know we did one million the first month, then the second million the second month, and the third million the third month."

On Monday, market-analysis firm iSuppli increased its iPad sales estimates from 7.1 million to 12.9 million by the end of the year. If those numbers turn out to be true, that'd put the iPad's average sales rate for 2010 at over 1.4 million per month — significantly higher than the "bold" one-million-per rate Apple had predicted.

When asked how many iPhone 4 and iPad sales are being lost or deferred due to Apple's inability to meet demand — that is, whether the gap in supply/demand availability can be quantified — Cook countered: "I don't know. That question is very difficult to answer because the way that you truly find out what it is — at least from my own experience and perspective — is you have enough supply to serve the demand, and then you know what the demand is."

Speaking specifically about the iPhone, Cook explained: "The demand for iPhone 4 is absolutely stunning. We're working very hard to catch up with demand. I can't predict when that will occur, but I can tell you that everyone's working very hard to do it."

When asked what effects Antennagate has had on demand, Cook was adamant. "Let me be very clear on this: we are selling every unit we can make currently." When pressed further, Cook insisted: "My phone is ringing off the hook from people who want more supply."

Cook also noted that Apple shuts down production of older models such as the iPhone 3GS "aggressively" in order to promote early adoption of newer versions. "We would rather the market move quickly to the new product. And that's what happened here — frankly speaking, I'm glad that it happened, and it's exactly the way that we want to manage it." ®

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