Apple LG Partnership Could Become a Nightmare For Google And Samsung

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The iPhone is a trendsetter. There is absolutely no doubting that fact. While Apple may not pioneer a lot of new technologies, it has been responsible for propagating many of them and spurring mass adoption. We have seen evidence of this with multitouch, fingerprint sensors and countless other tech innovations. Of course, any new innovation comes at a cost, involving an arduous transition period. By the look of things, it would seem that OLED displays are set to become the next big Apple “innovation”.

The upcoming iPhone 8 is widely expected to sport an OLED display. In fact, the shift to OLED from LCD is one of the key headlining features of the iPhone 8. However, this transition is not expected to be smooth, as supply chain issues are always a problem when adopting new technology.

So, why is Apple Inc. (NASDAQ:AAPL) looking for a shift to OLED displays, and how does it plan to do so? And what repercussions will it have on the industry at large?

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Why OLED?

OLED or Organic Light Emitting Diodes is an offshoot of LED technology. It uses a series of thin light emitting films that do not require a backlight. This kind of technology proposes several advantages over the traditional LCD technology prevalent today.

  • Better Image Quality – OLED panels are capable of producing a much better image than traditional LCD. The lack of backlight means that OLED can produce much deeper blacks, as well as much more contrast. This gives the image a much more vibrant look.
  • Lower Power Consumption – One of the biggest advantages of OLED is due to the lack of any backlight. Today, displays are often the biggest battery hogs limiting our smartphone experience. OLED could change all that, allowing for better battery life in the future.
  • Durability And Lighter Weight – OLED panels are considerably more durable than their LCD counterpart, as they essentially consist of only a thin sheet of plastic/glass.
  • Possibly Cheaper – OLED panels are quite expensive right now owing to its limited supply channels and cost of manufacturing equipment. However, when production processes and supply chains are optimised, OLEDs could end up even cheaper than LCDs.
  • Higher Refresh Rates – OLED panels offer much higher refresh rates than LCDs. What this means is that the image will be considerably smoother on OLEDs.

Conquering The Supply Chain

It is clear that Apple has big plans for OLED in its iPhones. The iPhone 8 will likely be the first iPhone to embrace this new display technology. And this is only the beginning, with Apple hoping to fully transition to OLED by 2019. However, here is where Apple has hit a snag. Currently, OLED displays are in short supply, causing supply issues. In fact, this may even lead to the delay of the iPhone 8 launch. The OLED Display

Instead of dithering, Apple has decided to become proactive and address its future supply chain as soon as possible. To that end, Apple has inked a two-year deal with Samsung for the supply of 92 million OLED panels. Samsung Electronics Co Ltd (KRX:005930) is currently the clear undisputed leader in OLED manufacturing, controlling 95% of the market. They are also the only OLED manufacturer to meet Apple’s quality criteria for their displays.

However, this is not the Apple way. Samsung’s monopoly puts Apple in an unfavourable negotiating position. It not only creates uncertainty about a steady supply but also puts all eggs in one basket for Apple. A new report from The Investor now speaks of a possible deal between Apple and LG Display Co Ltd (KRX:034220) to facilitate an OLED manufacturing plant which will exclusively manufacture for Apple. The report also claims that Apple plans to invest 2-3 trillion won ($1.75 billion-$2.62 billion) in this plant. The new facility, dubbed “E6” will require a total of about 3.5 trillion won investment.

This seems like a match made in heaven for both Apple and LG. Apple sells millions of iPhones every year and needs a constant supply of displays to continue manufacturing them. The E6 plant should help them achieve that; and since this would be a one-way exclusivity deal, Apple would be free to source their OLED panels from elsewhere too. On the other hand, Apple’s investment in E6 will help LG offset a large portion of the high capital cost of OLED manufacturing equipment.

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Industry Repercussions

Just a lot of Apple’s other decisions, this deal with LG could have huge ramifications for the rest of the industry. One of the biggest losers from this deal could be Google. With Apple hogging OLED display supplies from both Samsung and LG, there could cause a severe shortage for Google and its Pixel 2. It also represents a potential deal hijacking, as it was reported earlier this year that Google was planning to invest 1 trillion won in an OLED plant with LG Display. This new development could be catastrophic to Google, as it may be forced to use LCD displays or produce a limited stock of the Pixel 2. A similar situation applies to many other smartphone OEMs looking to switch to OLED displays.

Samsung is another company which could be deeply affected by this. Apple is currently its largest display client. Any new deal with LG would diminish their business by a significant margin, especially at a time when Samsung is planning to open up new OLED manufacturing plants of their own.

Of course, Apple’s commitment to OLED is also expected to have a deep impact on the smartphone industry as well. As Apple begins to embrace OLED, many companies will follow suit. In fact, a new report estimates that OLED adoption will rise to 50% by 2020. The OLED Display market is estimated to be worth $43.92 billion by 2020. This looks set to become another instance where Apple sets the industry standard.

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