Over on Seeking Alpha (free membership required), contributor Nikhil Gupta offered up some commentary around a recent article in Nikkei, particularly as it relates to Apple's (NASDAQ:AAPL) display sourcing plans. The Nikkei piece said that Foxconn and Sharp, the former having recently taken a large equity stake in the latter, will begin mass production of organic light emitting diode, or OLED, displays for smartphones in 2019.
Current Apple iPhones use liquid crystal displays, or LCDs, but the iDevice maker is expected to be actively working to make sure the technology and supplier infrastructure is in place for a transition to OLED displays. Apple is expected to adopt OLED technology on a premium model that sits above the 5.5-inch iPhone Plus model in the company's 2017 product lineup, per a previous report from Nikkei.
So what does this have to do with Gupta's comments? In his article, he argues that "with the recent fiasco of Samsung's (NASDAQOTH: SSNLF) Galaxy Note 7 catching fire, and with reasons still unknown, Apple would not risk procuring OLED displays from Samsung."
The implication, then, is that if Apple has to wait for Foxconn and Sharp to get their act together in OLEDs, Apple's plans to release a premium iPhone next year with an OLED display may be in tatters.
That's not going to happen; here's why.
Displays don't explode
It's very likely that the Galaxy Note7's issues are, in some way, related to the batteries inside. After all, it is the batteries that are exploding. The problem may not be due to faulty battery packs themselves, but perhaps there is an issue with the design of the phone and how it interacts with the battery that caused those problems.
I don't think it's reasonable to blame the display itself.
Using Samsung-built displays should be fine
The reality of the situation is that Samsung Display is one of the only companies, if not the only one, capable of building OLED displays that can be used in high-volume smartphones today. Even LG, a major manufacturer of displays, still uses LCDs in its flagship smartphones -- though LG Display (NYSE:LPL) is reportedly making significant investments to enable a shift to flexible OLEDs at some point.
Not only should Apple be fine with using Samsung-built OLED displays, but if Apple wants to ship an iPhone with an OLED display during the second half of 2017, it might not have any choice but to source -- at least initially -- from Samsung.
Apple won't be tied to Samsung forever, though
Apple is unlikely to be happy to be tied to Samsung for too long, particularly given that the two companies are fierce competitors in the world of smartphones. The iDevice maker is surely going to work to enable other display manufactures, such as Foxconn/Sharp, as well as longtime LCD supplier Japan Display, to become important OLED display suppliers over time.
Indeed, it's pretty telling that Apple reportedly plans on only adopting a curved OLED display in a single ultra-premium model rather than across the board. With so few viable suppliers of mobile OLED displays today, the prices that Samsung can charge are likely substantially higher than what Apple's mobile LCD suppliers can.
This means that from both a margin perspective, as well as simply a supply availability perspective, Apple probably can't transition its entire iPhone lineup to OLEDs until later on.
Once all of the major mobile display vendors are able to successfully produce mobile OLEDs to Apple's specifications, pricing on mobile OLEDs should come down -- a positive for display buyers such as Apple and a potential negative for Samsung's mobile OLED margins and/or share at Apple for the longer term -- though the market opportunity is likely to be much larger as the supplier base grows.