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Are supply issues putting Apple at risk?

Apple faces supply issues surrounding the iPhone 4, which could prompt would-be buyers to consider rival smartphones, says iSuppli.

Early demand for the iPhone 4 that exceeded supply could put Apple at risk and is prompting frustrated customers to consider competing smartphones, according to a new report from iSuppli.

The iPhone 4
The iPhone 4 Apple

Though Apple and its partners racked up 600,000 preorders for the iPhone 4 in one day and sold 1.7 million units in just three days, iSuppli believes the early heavy demand has come at some cost to the company.

The huge wave of preorders on June 15 caused the ordering systems of Apple and AT&T to stall, shutting out some customers and forcing the companies to put a freeze on further preorders for delivery June 24. To add to the frustration, Apple has kept pushing back the date on which iPhones that were preordered later would ship, notes iSuppli.

Beyond the supply and ordering issues, many new iPhone 4 owners were upset when they discovered that holding the phone a certain way could cause their reception to conk out.

"While the channel supply issue might not impact total iPhone sales for the entire year, what is happening now certainly has done some damage to the Apple brand," Tina Teng, iSuppli's senior analyst for wireless communications, said in a statement. "Consumers, questioning Apple's supply chain management capability, have started looking for alternative devices. In particular, consumers are not satisfied with Apple's response to the antenna issue causing poor reception and dropped calls."

Teng acknowledges Apple's rise from virtually no presence in the smartphone arena in 2007 to the world's No. 3 smartphone maker today, just behind Nokia and Research In Motion. For 2010, iSuppli forecasts that Apple will ship 21.7 million iPhone 4 units, around 51 percent of the 42.6 million total iPhones that it will ship throughout the year.

But Teng also notes that Apple's competitors, especially those outside the United States, are pushing hard to make sure potential new customers are aware they have alternatives beyond the iPhone.

"While North American consumers are grappling with the iPhone 4 shortage, consumers--especially those in other regions--know they have other smartphone options," Teng said, citing efforts from Nokia, RIM, HTC, and Samsung to win market share.

Attempting to bounce back in a tough mobile-phone market, Nokia recently announced a reorganization of its business units. The company also has high expectations for its N8 smartphone, which will include 3G video conferencing, an HDMI connection, a replaceable battery, and a "lite" version of Flash.

RIM will launch a new version of its BlackBerry OS by September and is reportedly cooking up a new phone.

iSuppli also sees potential competition from HTC, which recently unveiled its 4G Evo, the first 4G phone in North America. And another rival, Samsung, has proclaimed that its new Galaxy S phone will help it double its smartphone market share this year.

Though iSuppli makes some valid points, it's not safe to bet against the juggernaut that Apple has become. Complaints over preordering problems and technical glitches may have flooded cyberspace for a few days, but these issues probably will have little lasting impact on Apple's image and the huge demand for its devices.

Apple has also faced supply issues with previous models of the iPhone, but that hasn't seemed to dampen the desire for the phone or affect Apple's lure over its customers.

Even Teng admits that any plans from Apple's rivals and the company's own supply issues probably won't stop the many people eager to get their hands on the iPhone 4. But she still believes increased competition could pose a real risk to Apple, especially if the company continues to face supply problems.

"With threats coming from every corner of the market," Teng said, "can Apple afford another slip in its supply chain management?"