Please ensure Javascript is enabled for purposes of website accessibility

Samsung Might Remain Sole Supplier of OLED Displays for Apple

By Evan Niu, CFA – Apr 20, 2018 at 6:53PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Apple has been hoping to bring on LG as a second supplier, but the Korean company is running into manufacturing problems.

Easily the biggest cost driver in Apple's (AAPL 1.95%) flagship iPhone X is the OLED display. When the device launched last November, IHS Markit estimated that the display panel alone cost a whopping $110, which is more than twice what a traditional LCD panel -- like those found in iPhone 8 and 8 Plus -- costs. Samsung has been the sole supplier for OLED panels thus far, and Apple has been hoping to diversify its OLED supplier base by adding LG. Generally speaking, adding additional suppliers not only reduces supply-chain risk, but also helps with costs, as those suppliers must compete against each other on price.

It appears that those efforts are hitting a roadblock.

Corner of iPhone X's OLED display

Image source: Apple.

LG might miss the deadline for volume production

The Wall Street Journal reports that LG has run into manufacturing challenges that are pushing back its production schedule. Each year, Apple usually begins volume production of new iPhones during the summer ahead of unveiling and launching the devices in the fall. The Mac maker has asked LG to provide a third round of prototype production, which is a rare move, according to the report.

While LG is a big player in the OLED market, offering products like OLED TVs and including OLED displays in several of its flagship phones, it's widely accepted that LG's OLED panel quality is inferior to Samsung's. Additionally, Apple has extremely high quality requirements that suppliers must meet, and suppliers in some cases must tweak components to meet its precise specifications.

For example, LG provides the OLED display in the Pixel 2 XL, which suffers from problems like color shifting and screen burn-in. Alphabet subsidiary Google responded to widespread complaints last year by extending the device's warranty by an additional year, while releasing software updates that it hoped would mitigate the issues.

Apple has been hoping to source 20% of OLED displays from LG, with Samsung providing the remaining 80%. If LG can't resolve its problems soon, it could miss the impending deadline, forcing Apple to continue relying on Samsung as a sole supplier.

OLED displays are expensive

The most current estimate for what Samsung is charging Apple for OLED panels is $97, according to the report, citing consulting firm Fomalhaut Techno Solutions. That's a huge chunk of the iPhone X's total bill of materials (BOM) cost, which Fomalhaut estimates at $376.

Apple is expected to release three iPhone models this year, two of which would include OLED displays (a 5.8-inch model and a 6.5-inch model). The iPhone X's high price tag has hurt demand, with many prospective customers opting not to upgrade, considering the device to be "too expensive." If Apple were able to score some cost savings from adding a second supplier, it could potentially reduce that price, although that's not an easy move to justify either.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends GOOG, GOOGL, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$145.22 (1.95%) $2.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.