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We finally know why the Apple Watch rollout has been delayed. A faulty part, the taptic engine responsible for the sensation of being “tapped” on the wrist, has caused massive product shortages. As it turns out, Apple (NASDAQ: AAPL) has a supply-chain issue.
Considering that Tim Cook rose through the corporate ranks as an expert in supply-chain management and distribution, the delay has to be especially frustrating for him.
The CEO of Apple started his career at IBM (NYSE: IBM), where he would eventually run the supply chain. He later took on the same a role at Compaq before it merged with Hewlett-Packard (NYSE: HPQ).
Cook joined Apple in 1998 and would become one of Steve Jobs’ key lieutenants. His importance to the company was cemented by his expert management of Apple’s supply chain during the launches of the iMac, iPod, iPhone and iPad.
The Apple Watch is the first new product launched by Apple in the Tim Cook era and is considered especially important to the CEO’s reputation.
The new device stunned the world when it sold out just minutes after pre-orders began on April 10. Buyers placing an order 20 minutes after pre-orders began were told to expect June delivery. Believe it or not, Apple’s own retail stores weren’t even able to stock the Apple Watch on the device’s official launch date, April 24.
Though I’m not sure Tim Cook sees it this way, the product shortages caused by the faulty part seem to have only added to the mystique and allure of the Apple Watch.
The problem stems from faulty taptic engines provided by one of Apple’s two taptic engine suppliers, AAC Technologies Holdings. That company’s Hong Kong-listed stock is down 20% since the pre-orders of the Apple Watch began, falling 8% in one day after reports of the defective part first surfaced.
The taptic engine was one of the most-hyped features of the Apple Watch, the technology that allows the watch to silently “tap” the user on the wrist to alert them to an incoming notification.
While it was initially unclear whether this shortage of Apple Watches was due to a manufacturing issue or unexpectedly high demand, the shortage has undoubtedly sparked additional interest in the product. At first, some speculated that Apple may have kept inventory levels low to sell out quickly and generate a media storm around the speed at which the product sold out. Certainly Apple’s well-polished PR machine couldn’t have drafted a better story.
Instead, it seems that Apple had a rare supply chain issue and caught the problem before shipping any Apple Watches containing the faulty taptic engines to consumers. On Apple’s recent earnings call, Tim Cook mentioned that he expected to release the product in a second wave of countries in “late June,” an indication that he expects the company to work out its supply chain issues and inventory shortages by then.
Considering how few Apple Watches have been delivered, it still remains to be seen how the mass market will receive the product. Certainly the fact that the product sold out in minutes has helped its image, despite the fact that the Apple Watch is delayed because of a faulty part. This whole ordeal may very well turn out to be a happy accident.
DISCLOSURE: I personally own shares of Apple.
First Apple, now this…
On Friday, April 24th, the Apple Watch finally became available. And if history is any guide, it’s going to catapult Apple even higher—as did the iPod, iPhone and iPad before it. Now, Apple would prefer you didn’t know this…but there’s another company that’s destined to soar even higher because of the Apple Watch. Apple has long tried to keep it a secret. But you can discover it right here.