Samsung (NASDAQOTH:SSNLF) has long been thought of as Apple's (NASDAQ:AAPL) main rival in the smartphone market. However, the two companies aren't just competitors -- Apple has often relied on Samsung for critical components, too.
It's widely believed that Samsung Display was the sole display manufacturer for the now-discontinued iPhone X, which was Apple's first smartphone with an organic light emitting diode (OLED) screen.
While there have been reports that Apple will also rely on LG Display (NYSE:LPL) to supply some of the OLED screens for its latest iPhone XS and iPhone XS Max devices, it's probably safe to say that Samsung remains a key supplier of OLED screens for those devices, too.
Samsung, as you might be aware, recently published earnings guidance for its third quarter. CNN Business, paraphrasing comments from analyst SK Kim, said that "[the] higher margins for flexible screens Samsung is supplying for the new range of iPhones helped boost earnings."
While I don't doubt that shipments of OLED screens to Apple helped Samsung's earnings in the quarter, it's important to understand that Samsung's display business just isn't that big of a contributor to the South Korean giant's overall business. Allow me to explain.
Samsung Display's contribution
In 2017, Samsung reported that its display panel sales were, using current exchange rates, about $30.2 billion -- almost 14.4% of the company's total revenue.
The operating profit contribution from this business, though, was lower than its revenue contribution, coming in at around 10% that year, as CNN Business pointed out. Samsung's biggest source of operating income in 2017 was its semiconductor business, at 65.6% of the total, with its IT & Mobile communications business coming in a distant second, at almost 22.1% of the company's yearly operating profit.
In the first quarter of 2018, Samsung reported that its display business saw a 3% year-over-year increase in revenue, but operating income plunged about 68.5%.
The company said its profits from OLED screens "declined due to weak demand and rising competition between Rigid OLED and LTPS LCD." As far as its LCD business went, "[earnings] stayed flat [quarter over quarter] thanks to cost reduction efforts and product-mix improvements amid a decline in sales and [average selling prices] caused by weak seasonality."
In the subsequent quarter, Samsung saw display revenue drop 27% and operating income plummet about 92.4%.
Samsung explained that even though its factory utilization rate for rigid OLED panels improved (this means an improved cost structure), OLED-related earnings "decreased due to slow demand for flexible panels."
On the LCD side of things, Samsung said that "[earnings] weakened due to declines in sales volume and [average selling prices] of TV panels." Indeed, Samsung's display business contributed to just 2.6% of the company's operating profits in the first quarter of 2018, and almost 1% of its operating profits in the second quarter of 2018.
Another thing worth pointing out is that Samsung's display business doesn't only serve Apple. Indeed, according to Kim's comments in the CNN Business piece, "[business] from Apple accounts for 25% to 30% of sales of Samsung's display division."
Ultimately, the key drivers of Samsung's financial performance are its semiconductor business (which is, itself, dominated by its memory businesses) as well as its mobile devices business.
Samsung's display business just isn't that important to the company's overall financial health these days, and given that Apple is just one customer (albeit a fairly large one), I think it's important for investors to not overstate the importance of Samsung's display supply relationship with Apple.