It appeared that demand was simply outstripping supply for the new Apple Watch, but Apple is also running into production problems. Jordan Golson explains.
In the past 10 years, Apple has launched three major new product categories: the iPhone, the iPad, and now the Apple Watch. The first two have generated hundreds of billions of dollars in revenue, and the Apple Watch seems poised for similar success.
But the launch of the Apple Watch hasn't been exactly seamless. First, the company choose to sell the device exclusively online rather than both online and in the company's several hundred retail stores. Then Apple sold out of its initial stocks of the watch, delaying shipments of some versions until June.
For a while, I thought Apple was merely having trouble meeting demand, but it turns out to be more than that. According to a report published yesterday by The Wall Street Journal, Apple has run into difficulties with one of its supply chain partners for the taptic engine, a key new feature of the Apple Watch. The taptic engine is a small mechanical device that creates the unique tapping sensation on the wearer's wrist.
According to the Journal, some of the taptic engines built by the Chinese firm AAC Technologies Holdings Inc. would break down over time. As a result, Apple has moved "nearly all" of its production of the taptic engine to Japan's Nidec Corp. However, it will take time for Nidec to ramp up production of the component to the volumes needed by Apple.
This delay could be what's pushing back so many of Apple's orders into June, and it could also delay the launch of the Apple Watch in more countries. Speaking in Apple's earnings call with Wall Street analysts on Monday, Cook said:
"Right now, demand is greater than supply, and so we're working hard to remedy that. We've made progress over the last week or so, and we were able to deliver more customers an Apple Watch over the weekend than we had initially anticipated.
"We're going to keep doing that, and so we've already sent some notes out today, moving the customers and versus what we had communicated to them previously. So I'm generally happy that we're moving on with the ramp. It is a new product for us, and with any kind of new product, you wind up taking some time to fully ramp.
"Having said that, I think we're in a good position and by sometime in late June, we currently anticipate being in a position that we could begin to sell the Apple Watch in additional countries. And so that's our current plan."
What's the lesson to be learned here? For one, don't put all your eggs in one basket, and ensure that you have multiple options for mission-critical supplies. Apple's done this, allowing the product ramp to continue, albeit at a slower rate than the company originally planned.
Also, it's important to be flexible. Cook said that, in many cases, they predicted correctly regarding which watches would be the most popular. In others, Apple is "making adjustments to get in line with demand." Apple is making a ton of different watches and would have known from the beginning that their predictions wouldn't necessarily have lined up with what consumers were looking for.
To get some extra information, Apple asked customers to "favorite" their preferred designs, pulling some non-scientific polling into their internal analysis of what customers were most interested in. When pre-orders for the Apple Watch began, buyers were prompted with their favorited styles first, making life easier for the buyer and giving Apple extra insight into what consumers were looking for, ahead of launch day.
Being prepared for the unexpected and remaining flexible enough to deal with the unexpected when it inevitably arrives is key to business. I doubt Apple will talk much about this hiccup in the Apple Watch launch, but it should end up as a business-school case study somewhere. Perhaps at the company's internal training program, Apple University.
How do you think Apple is handling the launch of the Apple Watch so far? Let us know your opinion in the comments below.
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