Apple Inc. Invests $2.7 Billion in LG to Keep the iPhone Party Going (AAPL)

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It’s no secret at this point that Apple Inc. (NASDAQ:AAPL) is planning to move to OLED displays for the iPhone 8. But with the iPhone driving AAPL stock growth, it’s also looking to move all its future smartphones to the technology.

Apple Inc. Invests $2.7 Billion in LG to Keep the iPhone Party Going (AAPL)

Source: Apple

And that is likely to strain supplier Samsung Electronics Co Ltd’s (OTCMKTS:SSNLF) capacity. News is breaking that AAPL has invested $2.7 billion in LG’s upcoming new OLED manufacturing facility to secure dedicated OLED displays for future iPhones.

Apple Looking Beyond the iPhone 8 for OLED

Android smartphones including Samsung’s Galaxy line have used OLED displays for several generations. The advanced display technology offers a number of advantages over traditional LCD screens, including lower power use, thinner screens and flexibility. It’s because of OLED that Samsung is able to curve the display on its Galaxy S8.

While it uses OLED for the Apple Watch, AAPL has stuck to LCD with its iPhones. And while that has hardly hurt sales, the company is looking to make a big splash with the 10th anniversary iPhone 8. Line-ups around the block at Apple Stores like the old days, record pre-orders and a corresponding surge in AAPL stock.

To generate the kind of excitement needed to drive the record iPhone 8 sales its hoping for, AAPL is going to offer a radical new design for the iPhone 8. And a big part of that is a switch to OLED displays. Smartphone rival Samsung will be providing the OLED displays in its other role as Apple supplier…

However, AAPL is expected to move toward standardizing on OLED displays across the iPhone lineup. The problem is that it’s questionable whether Samsung has the capacity to supply OLED displays in the quantities Apple would need if all iPhones used the technology.

Apple Investment in LG’s OLED Production

The other primary producer of OLED displays is LG. The company uses them in its stunning OLED TV sets.

LG is estimated to have a 10% share of the OLED display market (to Samsung’s 90%), but the company is trying to boost that. Earlier this week it announced it was spending $7 billion on new plants in an effort to boost production capacity, with the hope that some of those panels might make their way into the iPhone 8 or future iPhones.

In the latest development, South Korean sources are reporting that AAPL has invested $2.7 billion in LG’s OLED production. MacRumors and other Apple-tracking websites have picked up the story, which claims AAPL is paying LG as an advance payment on future production of 45,000 OLED panels per month for future iPhone models, starting in 2019.

That may not sound like a lot of panels — given that AAPL sold just under 52 million iPhones in Q1 2017– but the Apple investment is meant to supplement what Samsung can produce, not replace Samsung.

$2.7 billion is a large sum of cash, even for a company as big as AAPL. However, as a pre-payment it represents money that would have been spent on the components anyway, and investing in LG is a smart move to reduce reliance on a single supplier for a key component. The iPhone 8 is expected to generate record sales that give AAPL stock its next big boost.

But to maintain that momentum AAPL needs to think ahead to future iPhones. Ensuring it has the necessary capacity to support the use of the latest technology going forward is the kind of smart move that has helped to keep AAPL on top even as the smartphone market gets more competitive.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/apple-inc-aapl-invests-2-7-billion-lg-keep-iphone-aapl-stock-party-going/.

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