Japan Quake Poses Supply Issues For Apple IPad 2 -IHS ISuppli

Apple Inc.'s (AAPL) newly unveiled iPad 2 may suffer from supply shortages in its electronic compass, the battery and possibly its touchscreen glass because of the devastating earthquake and tsunami in Japan, a research firm said Thursday.

IHS iSuppli found at least five parts in the iPad 2 sourced from Japanese suppliers that could be impacted, including NAND flash memory chips from Toshiba Corp. (6502.TO), dynamic random access memory made by Elpida Memory Inc. (6665.TO), an electronic compass from AKM Semiconductor, the touchscreen overlay glass likely from Asahi Glass Co. (5201.TO) and the system battery from Apple Japan Inc, according to IHS iSuppli.

"While some of these suppliers reported that their facilities were undamaged, delivery of components from all of these companies is likely to be impacted at least to some degree by logistical issues now plaguing most Japanese industries in the quake zone," the research firm said.

Apple declined to comment Thursday on its supply chain. On Monday, the company said its Japanese facilities were open and functioning following the earthquake and tsunami.

Apple released the iPad 2 in the U.S. last week, and analysts estimated sales over the weekend ranged anywhere between 500,000 and 1 million units. Apple's online store is showing a shipping delay of a month or more for all new versions of the iPad 2.

Apple said earlier this week that it would delay the iPad 2's launch in Japan following the recent developments that have devastated the country. The company had planned to begin iPad 2 sales in Japan on March 25, alongside 25 other countries in various points around the globe.

IHS iSuppli said Japanese suppliers are facing difficulties with employees not being able to get to work because of issues with the transportation system as well as interruptions in the electricity supply. Semiconductor facilities that had suspended manufacturing activities following the earthquake can't get back up to full speed until the aftershocks come to an end, the firm said.

"Earthquakes ranging from 4 to 7 on the Richter scale will make it impossible to really restart these fabs until the earthquakes stop happening with such frequency," Dale Ford of IHS iSuppli said. "Every time a quake tops 5, the equipment automatically shuts down."

The temporary suspension of production at Toshiba's main NAND production facility has prompted speculation regarding Apple's supply of NAND flash. But IHS iSuppli said the NAND devices used in the iPad are available from alternative sources, including Samsung Electronics Co. (005930.SE) and Micron Technology Inc. (MU).

The firm said the compass and glass supply could be more problematic issues for Apple, especially if shipments are delayed because of the logistical issues following the earthquake.

Apple shares closed Thursday up 1.4% at $334.64.

Gene Munster, an analyst at Piper Jaffray, said in a separate research note Thursday that key component makers for the iPad 2 as well as the iPhone 4 have temporarily shut down operations in Japan to assess damage.

"It appears no one has a good handle of the extent of damage and when production will resume," Munster said, adding that Apple could face temporary supply issues, but they shouldn't impact consumer demand, which remains strong.

-By Steven Russolillo, Dow Jones Newswires; 212-416-2180; [e-mail]

(Ian Sherr contributed to this report.)