When Apple (AAPL 1.45%) first unveiled the Apple Watch last fall, it described its screen as a "flexible Retina display." Shares of Universal Display Corporation (OLED 1.69%) were wrongly crushed the following day as a result, falling as much as 10% when investors assumed Apple's vague verbiage meant the watch would have an LCD instead of the OLED specialist's flagship technology.
To be fair, it was hard to blame investors for their confusion; back in 2013, Apple CEO Tim Cook blasted OLED technology during an investor conference, calling its color saturation "awful," telling consumers to "think twice before depending on the color of an OLED display," and noting Apple's Retina displays were twice as bright as OLED displays at the time.
Step 1: OLED Apple Watch
But now here we are, and thanks to some handy R&D efforts, Apple has found a way to make its "Retina" branding and OLED peacefully coexist in the same device. Both Universal Display management and tech teardowns of Apple Watch have confirmed it does sport an OLED display, likely provided through a previously reported manufacturing and supply agreement with Universal Display customer LG Display (NYSE: LPL). And it's hard to blame Apple for the shift, as OLED displays can be made thinner, more power efficient, and even flexible.
However, with small screen sizes of either 42 mm or 38 mm (depending on the model), Apple Watch currently has a minimal impact on Universal Display's revenue and earnings. So more than anything, Universal Display investors are rightly taking Apple Watch as an exciting sign of things to come from the folks in Cupertino.
That'll won't happen immediately, of course. But in the meantime, there are already several signs Apple is ramping its plans to expand the role of OLED in its iDevices. In fact, I think it's quite possible that, over time, Apple will completely transition away from LCD and toward OLED.
If I'm right, here are Apple's next steps:
Step 2: OLED iPhones
During Universal Display's conference call with analysts earlier this month, CEO Steve Abramson specifically called out a DisplayMate review of the OLED display in the Apple Watch. Specifically, he read the line from the review stating Apple Watch "provides very nice, pleasing and accurate colors and picture quality, and is a very good side-by-side match to the iPhone 6" (emphasis mine).
But what would it take to get an actual OLED display inside the iPhone? Recall in January, Japanese media reports stated Apple has contracted both Foxconn (NASDAQOTH: FXCNY) and Innolux to build a $2.6 billion plant to manufacture not only flexible OLED displays for wearable devices, but also five-inch OLED smartphone displays. Apple was also said to require exclusive access to the plant's full production capacity, with a targeted time frame of "2016 or 2017."
In March, however, Apple also made a billion-dollar prepayment to help fund and secure exclusive capacity from a similar new LCD factory to be run by Japan Display, with a targeted opening of 2016. Consequently, analysts at JPMorgan predicted this means Apple will likely stick to LCD for at least the next iteration of its iPhone line up.
But given the "2016 or 2017" time frame for Foxconn's OLED factory, that doesn't mean the two factories' outputs must conflict with one another. That's also not to mention the fact Samsung Display -- currently Universal Display's single largest customer -- recently formed a 200-person team reported to focus exclusively on Apple's display needs. And Samsung, for its part, is already the world's undisputed leader in producing both small and medium-sized OLED displays.
Step 3: OLED iPads (and more?)
Speaking of medium-sized displays, last month Korean news site ETNews reported Japan OLED -- or JOLED, a joint venture launched last year by Japan Display, Sony, and Panasonic -- has been contracted by Apple to produce OLED displays for next-generation iPad tablets. ETNews also claimed that, contrary to early reports of a pilot production target of the end of 2017, JOLED is now aiming for a late-2016 goal to achieve mass production for this venture. If that's true, it would mean Apple is attempting to roll out its next-gen, OLED-centric iPads and iPhones around the same time, while smartly hedging its bets using different display vendors.
Then again, without an OLED MacBook this wouldn't be a complete transition to OLED. But given its history, it also wouldn't surprise me in the least if Apple were to attempt to incorporate larger OLED displays into its repertoire. Around this time last year, for example, The Korea Herald reported Apple asked an "unnamed" South Korean company for sample panels for a 65-inch OLED iTV. And in an open letter to Tim Cook earlier this week, activist Apple investor Carl Icahn said he believes the tech behemoth will introduce an ultra HD television sometime next year -- though it's hardly a guarantee, as The Wall Street Journal subsequently cited "people familiar with the matter" as saying Apple quietly shelved its TV plans sometime last year.
Nonetheless, if one thing seems clear it's that Apple is working hard to deepen the role of OLED technology in its product repertoire. Its plans will take time to come to fruition. But as Apple's transition becomes more clear by the day, I think Universal Display investors will only continue to be handsomely rewarded for their patience.
