The OLED display on last year's iPhone X is one of that flagship's headline features, but thus far Apple (NASDAQ: AAPL) has relied entirely on a single source for OLED panels, frenemy Samsung. Only having one supplier for a critical component is never ideal, as it gives that supplier much better negotiating leverage. The premium prices associated with OLED displays are a significant contributing factor to iPhone X's lofty price point, and Apple has reportedly been seeking pricing concessions from the South Korean conglomerate.
Apple has been working to bring LG Display (NYSE: LPL) onboard as a second supplier, but the latter company has been hitting roadblocks in terms of manufacturing capacity and quality requirements. However, it sounds like LG is making progress.
Image source: Apple.
A small start
Bloomberg reports that a deal with LG is imminent, although the supplier is only expected to provide a relatively small number of units to Apple -- just 2 million to 4 million. Apple sold 77.3 million total iPhones in the fourth quarter alone, although it does not disclose unit mix, so it's not clear how many of those were iPhone X models with OLED displays. That would just be a start though, paving the way for the company to purchase "significant volumes" from LG in 2019, according to the report.
Apple is expected to release three new iPhones in 2018, of which two will incorporate OLED displays. LG is vying to be the sole supplier for at least one of those models but may not be able to secure such a commitment from Apple. China's BOE Technology, one of numerous Chinese companies investing in OLED capacity, is also in talks with Apple to supply OLED panels, although it remains behind schedule with production.
The more OLED suppliers that can ramp production capacity, the better for Apple, as ensuing competition among suppliers would help drive down costs and subsequently accelerate adoption in the form of lower consumer prices.
More broadly, the OLED market has hit some setbacks recently, which have weighed on Universal Display (NASDAQ: OLED): Shares are down 60% from the all-time high set in January.
For example, market leader Samsung saw OLED shipments fall 26% in the first quarter to 88 million units, according to UBI Research. UBI was expecting the market to start recovering this quarter, but CLSA thinks it will take longer than that. Samsung's capacity utilization is still extremely low at around 35%, but this figure should rise to 80% in the second half of the year, in CLSA's view.
OLED technology should still enjoy a few years as the dominant display technology once it reaches mainstream adoption, despite some technological threats on the horizon like MicroLED. It will just take some time to get there, but at least Apple is now pitching in to catalyze adoption.
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Evan Niu, CFA owns shares of Apple and Universal Display. The Motley Fool owns shares of and recommends Apple and Universal Display. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.