Production issues with new thin display could limit Apple's initial iPad 2 supply

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The new ultra-thin glass screen set to be unveiled as part of the second-generation iPad this week has "yield issues" that could result in a limited supply at launch, one Wall Street analyst has said.

Bill Shope with Goldman Sachs said in a note to investors this week that sources in Apple's overseas supply chain have indicated that the iPad 2 may be affected by production difficulties. These alleged problems could result in limited supply available at launch, for a surprising product availability that AppleInsider has heard could happen near immediately.

But while Apple may experience an initial production bottleneck, Shope also reaffirmed that Apple is not expected to experience delays in launching the iPad 2. Earlier reports suggesting a significant delay of months were separately rebuffed last week.

"It appears that Apple is once again pushing the technology envelope by making the device far thinner than the original iPad, and the iPad 2's ultra-thin glass screen is generating yield issues," the analyst wrote. "This appears to be more of a process problem as opposed to a technology problem, and we wouldn't be surprised to see volumes ramp fairly quickly as the process improves."

Shope noted that almost all of Apple's new iOS products start out with limited volumes at launch. Because of this recurring trend, he said supply constraints for the second-generation iPad "should not be a major concern" for AAPL investors.

The new iPad is widely expected to have a forward-facing camera for FaceTime video chat, along with the usual technical improvements like a faster processor and more RAM. Shope also expects the new iPad to support both GSM and CDMA wireless technology, but does not expect the product to be a 4G long-term evolution compatible device.

"As of now, we are not assuming Apple will expand the storage capacity for the iPad, which should enable the company to enjoy better product margins over time," he added.

The current financial models from Goldman Sachs project the average selling price of the iPad to be 10 percent less than the previous generation. However, he noted that iPad pricing is already more aggressive than competitors, so he does not believe a price cut is necessary for the second-generation device.

Apple is set to hold a media event on Wednesday to introduce the second-generation iPad. The event will be held at the Yerba Buena Center for the Arts in San Francisco, Calif., and AppleInsider will have full live coverage.