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Will Apple Spend $1.7 Billion To Diversify Its Supply Chain?

Louis Bedigian

Apple Inc. (NASDAQ: AAPL) is rumored to be in talks to build a $1.7 billion plant with Japan Display.

The deal would eventually allow Apple to produce its own OLED displays, which could be critical to future iDevice production. It may not be Apple's way to get away from Sony Corp (ADR) (NYSE: SNE) and other suppliers, however.

"Most electronic components you want to get thinner and lighter over time," Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, told Benzinga. "One of the heaviest components in any Apple device is the screen."

Udall said that if Apple wants to make thinner, lighter and less breakable displays, it has to keep innovating.

"The one thing Apple has been very smart about doing too is they are dual- and triple- and quadruple-sourcing now," he added. "They almost don't single-source any product now. I don't think they have that many companies building displays for them. They also want to add to their supplier list any time they can. It's much, much better for Apple long-term if they at least have two sources, if not more."

Related Link: The Rumored Apple Car Initiative: 6 Things Investors Must Know

Winners And Losers

Global Equities Research analyst Trip Chowdhry doesn't expect there to be many losers in this scenario.

"I would say a smart company always diversifies its supply chain," Chowdhry told Benzinga. "Who wins? Definitely Apple is a winner because the more suppliers you have, the better customization you can get from them, and you can always assure supply [isn't a problem]."

Apple's win may not be a loss for others, however.

"Does anybody else get harmed?" Chowdhry questioned. "I don't think so because the market is very big. Apple needs very specific components. [iDevices are] not general purpose, off-the-shelf products. I'm not sure if anybody gets disrupted from this, but I do think it's a possibility."

Tech industry expert and analyst Jeff Kagan also has doubts that Apple's plant would hurt others in the space.

"The question is, would it take away from the business they're already doing with other companies and divert it with another company?" Kagan told Benzinga. "Or will there be enough for them to add this new company in? Apple is the biggest company. There's an opportunity for them to do business with all of these companies. I think it would make sense for them to do that."

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

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