Last year, Apple (AAPL +0.01%) introduced the iPhone X, which was the company's very first smartphone with an organic light emitting diode (OLED) display. All other iPhones use liquid crystal displays, or LCDs. Although the iPhone X's OLED display, which Apple marketed as a Super Retina HD display, offered several advantages in contrast ratio and pixel response times, it suffered from one drawback that investors should care about: cost.
OLED displays are inherently tougher to manufacture than LCDs. In fact, during its analyst day in 2017, semiconductor equipment-manufacturer Applied Materials, which supplies panel manufacturers with equipment used in the production of displays, cited the high complexity of OLED manufacturing relative to LCDs as a driver of increased manufacturing capital intensity.
Image source: Apple.
That increased capital intensity can be a boon for equipment makers like Applied Materials, but it can also mean higher manufacturing costs for display makers, and ultimately, higher component costs for their customers like Apple. It's reasonable to believe that the OLED screen on the iPhone X costs Apple more to procure, say, than the LCDs used in the iPhone 8 or the iPhone 8 Plus.
However, while many companies produce mobile LCDs, only one company -- Samsung Display -- was able to supply the iPhone X screens. When a company is beholden to a single supplier, it doesn't enjoy the bargaining power it might have if it were able to play multiple suppliers against each other. I wouldn't be surprised if the dearth of OLED suppliers contributed to the premium that Apple pays for the displays found on the iPhone X.
That's set to change this year, with LG Display (LPL 0.97%) reportedly set to manufacture a portion of the OLED screens that Apple will use in this year's iPhone lineup. And now, a third player may be set to join the fray.
More suppliers, more bargaining power
BOE Technology, a Chinese display manufacturer, is trying to make the cut as an OLED display vendor to Apple, The Wall Street Journal reports. BOE Technology, the report says, already builds liquid-crystal displays for Apple's MacBook and iPad product lines (though it doesn't specify which specific models within those product families BOE provides the displays for). Apple and BOE already do business together, so it wouldn't be farfetched to see BOE added to the iPhone supply chain -- provided, of course, that it can build displays that meet Apple's exacting standards.
Indeed, it's in Apple's best interest to have as many capable suppliers vying for its iPhone display business as possible. At the very least, having additional OLED screen vendors onboard should allow Apple to extract lower pricing from those vendors, which Apple can use to either boost its profit margins, lower device pricing, or even allocate the bill of materials savings to other areas of its devices.
Additionally, if Apple can negotiate low enough prices, it could proliferate OLED screens across a wider set of devices. The rumor mill suggests that Apple's preparing three new iPhones. The lowest-end one is expected to use an LCD (likely for cost reasons), while OLED screens will be limited to the highest-end devices.
If Apple, one day, can get good enough pricing as a result of increased OLED supplier competition, it could eventually transition its entire lineup to OLED displays. That could potentially serve as a marketing point for the successors to this year's LCD iPhones.
When could this happen?
It's unlikely that BOE Technology will be able to win any of the OLED screen business for the iPhones that Apple intends to launch this year. In fact, The Wall Street Journal reports, citing a source "familiar with the matter," that "the earliest BOE could supply the OLED screens would be from 2020."
In other words, BOE won't be able to score OLED screen business in this year's iPhones or even the models that launch next year. (Apple generally releases new iPhones in the fall of a given calendar year.) However, the Chinese display maker could have a shot at the ones that will launch in the second half of 2020.
If LG Display proves itself a worthy supplier of OLED screens for iPhones over the next two product cycles, and if BOE is added to the mix in the product cycle after that, then Apple should have at least three capable display makers vying to supply it with OLED displays. If you're an Apple shareholder, that should be music to your ears.
