There have been multiple reports in the press over the last several months suggesting that Apple (NASDAQ:AAPL) plans to transition its iPhone lineup from traditional liquid crystal displays, or LCDs, to displays based on organic light-emitting diodes, or OLEDs.
OLEDs promise a number of significant advantages over LCDs, including the lack of a need for a backlight as well as the fact that it can display "perfect" black levels (since the pixels essentially turn "off" when they are set to black with OLEDs).
Although the reports unanimously point to Apple making this transition within the next two years or so (by the time iPhone 8 launches), there have been some reports suggesting that the transition could come as early as the second half of 2017 with the iPhone 7s.
In this article I'd like to make the following argument: If it is technically and economically feasible for Apple to actually move to OLEDs with the iPhone 7s, it should seize the opportunity to do so. Here's why.
Apple needs them to stay competitive
In order to maintain or even grow its share of the increasingly competitive smartphone market, Apple needs to make sure that its products offer best-in-class technology in areas that matter. Given how much Apple has touted the quality of its Retina Displays, it is imperative that the company dedicate the resources necessary to deliver industry-leading display technology.
Although Apple should be able to wring out one more really big improvement in its mobile LCDs with the iPhone 7/7 Plus allowing the company to offer a displays that are best in class, by the time 2017 rolls around I don't think that the same displays used in the iPhone 7/7 Plus will be leadership displays from September 2017 to September 2018.
Indeed, the displays found on the iPhone 6s/6s Plus are very good LCDs, but customers can go out and buy smartphones with objectively better displays today. The situation will only get worse for Apple in this respect over the course of the year as other Android flagships launch this year.
In order to avoid falling behind on display technology during the "s" cycle, I firmly believe that Apple should deliver an updated display. If Apple can get yet another boost from LCDs for the iPhone 7s, then it can hold off on OLEDs until the iPhone 8.
However, if Apple and its LCD partners aren't able to make such a leap in image quality/resolution year over year, then the iDevice maker will either be forced to use the same display that it used on the iPhone 7/7 Plus on the 7s/7s Plus or it will need to move to OLEDs.
It's a question of technology and available capacity
It's no coincidence that we are seeing the reports that Apple is planning to move to OLEDs pop up now. Apple ships north of 200 million iPhones per year, with the bulk of them being the company's latest models in a given year.
In order to support those kinds of volumes, Apple is going to need its display manufacturing partners to put in a lot of capacity. It's very hard to hide this kind of capacity build out, especially given that these manufacturing plants need to be equipped with many tools from different vendors.
At this point I think the question of whether Apple will move to OLED displays with the iPhone 7s or the iPhone 8 depends on two major factors: capacity and technology readiness.
The capacity appears to be being built out now with reports of both Samsung (NASDAQOTH:SSNLF) and LG Display (NYSE:LPL) committing billions in capital investment in OLED capacity additions. It is not clear if this capacity will be ready in time for the iPhone 7s, although a recent report from DigiTimes (citing ET News) suggests that LG will have a ton of capacity in place by the first half of 2017.
Furthermore, even if the capacity is in place, there is a question of whether the technology will be able to meet Apple's requirements by that time. Earlier reports have suggested that Apple was working with its suppliers to work out some remaining technical issues around OLEDs (one issue cited was display burn in).
If those technical issues have been worked out and the capacity is in place by the first half of 2017 (for a product launch in the second half of 2017), then launching then would be ideal for Apple from a competitive perspective.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.