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Apple Is Moving to OLED iPhones

By Evan Niu, CFA – Nov 1, 2016 at 2:12PM

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We just don't know quite when.

The iPhone 7 uses an LCD display with a wider color gamut. Image source: Apple.

While rumors of Apple (AAPL 0.83%) shifting its iPhone displays to OLED technology have persisted for half a decade, if not longer, we're now seeing the clearest evidence that Apple is indeed finally making the switch. The latest development on the OLED iPhone front comes from Sharp executive Tai Jeng-Wu, who recently gave a speech at Tatung University. According to the Nikkei Asian Review, Tai confirmed that Apple is transitioning to the newer display tech:

The iPhone has been evolving and now it is switching from LTPS (low-temperature poly silicon) to OLED panels. We don't know whether Apple's OLED iPhones will be a hit, but if Apple doesn't walk down this path and transform itself, there will be no innovation. It is a crisis but it is also an opportunity.

Sharp has long supplied LCD displays for the iPhone maker, and Apple's primary contract manufacturer Foxconn closed on its acquisition of the struggling Japanese company in August. To be clear, Tai did not actually disclose when Apple would be switching to OLED, but his comments are a clear indication that Apple is going forward with OLED. All other rumors point to 2017's "iPhone 8" as the ticket.

Sharp is in the process of investing in OLED manufacturing, as its current production capacity is quite low. All of this more or less jibes with a Bloomberg report from September.

The component play: Universal Display

As usual, you can't talk about Apple OLED rumors without referencing Universal Display (OLED -1.19%), the principle materials and IP provider of OLED technologies. Interestingly, Universal Display shares dropped in September following the Bloomberg report, since Sharp is not a major customer of Universal Display at present. The initial thinking was that Universal Display investors thought Apple was buying from a competing supplier (Sharp), snubbing Universal Display in the process.

That's not the case, though. Universal Display has long-term commercial supply agreements with both Samsung and LG Display, which are the two largest OLED panel manufacturers in the world. But just because Sharp has not yet inked a long-term deal doesn't mean it won't. Universal Display doesn't really have much competition when it comes to supplying OLED materials, which are absolutely necessary for OLED displays, so there should be little doubt that these materials will inevitably come from the company.

Seeing as how Sharp has historically had extremely limited OLED production capabilities, it makes sense that it has never bothered inking a long-term contract. But as Sharp works to ramp its capacity in order to accommodate Apple within the next year, it will very likely do exactly that in order to secure favorable pricing and supply of emitter materials. If and when Universal Display announces a long-term agreement, Universal Display shares will likely soar, as investors express relief that Apple isn't getting its OLED fix anywhere else.

Evan Niu, CFA owns shares of Apple and Universal Display. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Universal Display. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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