iPad 2 Production May Hurt From Touch Screen Shortages: Analysts

Apple's iPad 2 could face some production issues due to shortage of touch screens as some of the producers of those distinct screens were hurt by the Japan earthquake, according to analysts at FBR Capital Markets.

Although never confirmed for certain, it is believed that the iPad 2 touch screen uses Dragontrail glass from Asahi although some have suggested it is Gorilla glass from Corning. Both Dragontrail glass and Gorilla glass are thinner and more bendable glass designs that are very strong and difficult to crack.

Indeed, the concurrent release of Asahi's Dragontrail glass and the iPad 2, as well as physical tests, lead most experts to conclude that Asahi is responsible for this new screen.

Meanwhile, Asahi recently put out a statement saying that its LCD fab in Yonezawa (Yamagata prefecture) was damaged, but that production is resuming. Further the firm said that some of its outsourced production partners have had facility damage and that urgent restoration work is underway.

For the first quarter, the brokerage's contacts suggest iPad builds have been revised lower by 15 percent to 4.7 million units due to screen availability shortages. This represents a 38 percent drop from the fourth quarter units.

In addition, the brokerage said its contacts suggested that second-quarter iPad production was also revised lower by 9 percent to 5.8 million units from 6.4 million units. The 5.8 million represents an increase of 23 percent from the first quarter estimate of 4.7 million units.

Shortages of touch screen glass, yield deficiencies from display maker Chi Mei Innolux, and possible battery component shortages were cited as the primary drivers.

We note these production estimates are not set in stone and could improve or deteriorate further depending on conditions on the ground in Japan, FBR analysts wrote in a note to clients .

Separately, discussion has recently mounted that that Apple has qualified AU Optronics, the world's fourth largest LCD maker, another display provider for the iPad 2, though the analysts have not confirmed this information.

... we hear of some concerns that shortages of BT resin could impact production beginning in May or June, even despite Mitsubushi Gas Chemical's efforts to begin ramping production again, analysts said.

With 1H11 iPad production set at 10.5 million units, our contacts' goal for 2011 iPad shipments of 40 million to 45 million now seems like a stretch goal, they added.

Meanwhile, the recent build cuts were likely enacted after a comprehensive review of the iPad supply chain and the ongoing affects from the Japanese earthquake.

Given the two recent negative build revisions, and the analysts' estimates of units currently in inventory, they believe Apple could sell a maximum 4.7 million iPads in the first quarter and 6.0 million in the second quarter.