Sources inside Apple's supply chain partners say that the company has canceled plans for an iPad 3 launch later this year because of production constraints on the Retina Display, DigiTimes reports.

Apple was initially set to launch the next-generation iPad later this year but has cancelled its supply schedule for the second half of 2011. According to the report, Apple was supposed to produce 1.5 million to 2 million units in the third quarter of 2011 and 5 to 6 million in the fourth quarter of the new iPad but these orders have been cancelled.

Sources said the problem was with the yield rate of the 9.7-inch panel with a 2048x1536 Retina Display. Samsung Electronics and LG Display have been unable to produce the displays to adequate levels.

"IPad 3's requirements over the physical thinness, rich color support and toughness will all conflict with the panel's technology restrictions; therefore, this could cause a delay in the launch," the report said.

Rumors about the new iPad have been circulating ever since the launch of the iPad 2. Various reports have said that Apple was experimenting with software for a higher-resolution iPad 3. Bloomberg reported Apple was testing an iPad with a higher-resolution screen -- although how much higher is in question, with speculation ranging from one-third to double.

Whether or not Apple releases the iPad 3 this year, the company is still heads above other competitors in the tablet market. Apple is on track to produce 28 million to 30 million iPad 2 units in the second half of this year. It has sold more than 9.25 million units in the second quarter alone.