Another Apple Product Delay

The last time Apple shipped a product late was when it released the iPhone 4S. Phones were supposed to be delivered on October 14 of last year. Consumers had trouble getting to the Apple and AT&T (NYSE: T) online stores. Apple almost immediately posted a notice that some phones would be delivered one to two weeks late. The company said that the primary reason that the devices could not ship was that the preorders had resulted in inventories being sold out.

There have been several theories about why Apple rarely produces enough of its newest phones and table PCs. One is sort of a conspiracy theory. Apple keeps initial production low on purpose. This makes the products more precious than they really are and creates the illusion that demand is well beyond what Apple expected. The theory almost certainly is wrong. It is hard to figure why Apple would risk alienating customers in the name of a publicity stunt to make them and analysts believe that demand is beyond belief. Apple’s sales of new products are impressive enough that planned shortages are unnecessary.

Another possible reason for Apple’s delivery problems is inventory control. Apple, like most consumer electronics companies, has no reason to build devices that it believes will not be sold right away. Management might be blamed for poor forecasts, but it is smart not to pay too early for devices that will not be sold right away. The flaw in this theory is that Apple has nearly $100 billion in cash and equivalents on its balance sheet. Its cost to potentially overbuild inventory is close to zero, when Apple does not have to borrow for parts and factory activity.

That leaves one last reason for the tardiness of Apple’s products when it runs low on inventory. It is a given that management has missed anticipated demand before. It has happened over and over again. Perhaps executives at Apple have in mind the day when one of its products finally will not raise phenomenal excitement. It has to happen some time.

Douglas A. McIntyre