Apple Inc. (NASDAQ:AAPL) is planning to use organic light-emitting diode (OLED) panels in all three new iPhone models planned for next year, reports South Korea’s Electronic Times.
We note that for 2018, two out of the three iPhone models — a 5.8-inch second-generation iPhone X and a larger 6.5-inch iPhone X Plus — are expected to offer OLED displays. The low-cost third one is likely to be a 6.1 inch LCD (liquid crystal display) variant.
While Apple’s transition to OLED is a positive for major OLED screen providers, it is a serious concern for its LCD screen suppliers like Japan Display and Sharp that lag in OLED production.
Shares of Japan Display and Sharp fell as much as 21% and 4.3%, respectively, in intraday trading on May 29, while shares of OLED supplier LG Display rallied 5.9% post the news.
Shares of Apple have gained 11.5% year to date, slightly outperforming the industry’s 11.2% rally.
Is the Move Worth it?
Analysts are apprehensive regarding this move by Apple. Bloomberg quoted Jeff Pu, an analyst at Yuanta Securities Investment Consulting saying, “It is unlikely that Apple will be releasing three OLED models next year.”
Apple, in order to expand its supply chain, reportedly invested more than $2 billion in LG Display last year. The company is the sole supplier of OLED screen of Apple Watch and is rumored to be the supplier for the upcoming iPhone X Plus.
However, owing to some manufacturing problems, LG Display had difficulties to move into mass production of OLED screen and is also unlikely to boost production for Apple in 2019, Bloomberg adds.
On the other hand, Japan Display, which is moving to OLED technology, will be starting mass production of the same only in 2019. We note that Apple had to delay the launch of iPhone X due to the lack of adequate supply of OLED screens from suppliers like Samsung.
As far as Samsung is concerned, the company has long been one of Apple’s biggest suppliers for iPhone components. Samsung makes the products not only for Apple but also for its own smartphones.
Notably, Apple’s overdependence on Samsung for producing display panels for the first OLED phone, iPhone X, has strengthened the latter’s pricing power. Per KGI analyst Ming-Chi Kuo’s estimates, Apple pays Samsung in the range of $120-$130 per unit. This is significantly higher than iPhone 7 Plus’5.5-inch LCD, which cost $45 to $55 per unit.
Apple’s improving iPhone display is seen as the differentiator when compared with other rival products in the market. However, the higher cost of technology is translated into higher price of products, which is eventually passed on to consumers.
The expensive price tag might prove an impediment in generating sufficient demand. We note that Apple had to cut down on its iPhone X production following lower-than-expected demand for the product.
In March, Apple was rumored producing its own MicroLED screen, which created concerns for OLED suppliers. We believe bringing display manufacturing in house makes sense for Apple as it will no longer have to depend on others for supply of display screens.
Apple Inc. Revenue (TTM)
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