Asian Chip Suppliers Struggle to Meet Demand

Asian chip makers that supply components for Apple and others are having a tough time fulfilling orders because of strong demand for smartphones and tablet PCs, according to the Wall Street Journal on Wednesday.

Recent initiatives by consumer electronics companies to compete with the Apple iPhone and iPad are creating a huge demand for solid-state components, NAND memory, touch-screens and other displays.

“Due to the recent emergence of new, promising applications, such as tablet PCs, smartphones and iPad, we expect the supply condition in the NAND flash market will be tighter in the second half of this year,” said Keisuke Ohmori, a Toshiba spokesperson.

Of course, component costs are exactly what analysts ask Apple about at its quarterly earnings report. (The next one is scheduled for July 20.) When commodity parts cost goes up, Apple’s gross margins go down, and that’s a metric investors pay attention to.

Rising component prices could force Apple’s competitors to cut costs, using lesser quality components and/or pass the increased cost on to customers with higher retail prices. Apple on the other hand, thanks to its historically high gross margins, can likely still take a small hit on margin yet maintain its standard for high quality. Customers at the holiday buying season will likely notice that.

This effect combined with the coming holiday season suggests that Apple would be smart to come out with a new line of smaller, less expensive iPads to take the wind out of the sails of those competitors who attempt to mimic only the current iPad.