Samsung Slashes OLED Production on Slow iPhone X Sales

After investing in additional capacity, Samsung is reportedly slashing OLED panel production by 60% as a result of lower than expected iPhone X sales

By Brad Moon, InvestorPlace Contributor

http://bit.ly/2GtFu4p

Source: Apple

Are iPhone X sales failing to live up to expectations? Apple Inc. (NASDAQ:AAPL) investors got more bad news this morning. A new report says Samsung is dramatically slashing output at the OLED plant that produces displays for Apple’s flagship, suggesting iPhone X sales really are at much lower levels than Apple was targeting

Conflicting answers of iPhone X sales have rippled through the smartphone industry. One reports arrive says that Apple is slashing orders. Then Apple responds and claims the $999 smartphone is “surpassing expectations.”

Who is right? Well, this new report seems to indicate that it isn’t Apple.

The news sent Samsung stock down 2.3% and while AAPL stock has yet to recover from its highs of last month, the reaction of investors to the news remains muted. The rise of ASP (average sale price) to more than make up for disappointing volume appears to be helping out significantly.

Report: Samsung Slashing OLED Production

Samsung has more skin in the smartphone game than most. Not only is it the world’s top seller of smartphones — including the Galaxy class flagship smartphones that compete directly with the iPhone — but it also manufactures key components for competitors. 

When it came time to choose the company that would supply the OLED display panels for the iPhone X, Samsung went all out and invested $12.6 billion in new production capacity in order to win the Apple contract. At one point during the height of the iPhone X hysteria, it was predicted that Samsung could make as much as $22 billion on iPhone X sales.

The situation hasn’t developed entirely according to plan for either company, however. Despite Apple claims of iPhone X sales that surpass expectations and top the charts week after week, the numbers don’t seem to add up for Samsung.

Today Nikkei Asian Review reported that Samsung is slashing OLED production at the plant that manufactures displays for Apple. The plant’s original target of 45 to 50 million displays for the quarter has been cut to just 20 million. Because of poor iPhone X sales, Samsung will see a year-on-year decline in profits, instead of the expected windfall.

And while Apple stock has the rapidly growing iPhone ASP to help reduce the sting of lower than expected iPhone X sales, Samsung stock is already feeling the effects of the letdown.

Searching for Buyers to Take on That Extra Capacity

Samsung is reportedly looking for other customers to pick up some of the now excess OLED production capacity.

The problem is that OLED displays are expensive. That Samsung display is by far the most costly component in Apple’s smartphone. At $110, it’s estimated to account for nearly a third of the iPhone X build cost. That limits the potential customers to those selling premium, flagship smartphones.

And Samsung no longer has this display market to itself, with LG now also in the business. However, LG’s POLED panels for its G6 smartphone and Alphabet Inc’s (NASDAQ:GOOGL) Pixel 2 XL have come under fire for poor quality.

Maybe the company should be lobbying Google. Samsung already makes the OLED display for the smaller Pixel 2. If it could convince Google to dump LG as the sole supplier of the Pixel 2 XL, that could solve Google’s poor display woes and help Samsung unload some now surplus OLED panels…

With the iPhone launch rush over and Samsung’s new Galaxy S9 expected to be formally announced in just days, it’s highly unlikely that iPhone X sales are suddenly going to pick up steam again. Samsung appears to be stuck with the excess OLED production capacity, but with if the Galaxy S9 sells well, they are hardly the losers in this situation.

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

More From InvestorPlace:


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/samsung-slashes-oled-production-slow-apple-inc-aapl-iphone-x-sales/.

©2018 InvestorPlace Media, LLC