Easily the biggest cost driver in Apple's (AAPL -2.19%) 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.
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.
