One big winner from Apple’s next iPhone could be its arch-rival

Reliance on a rival
Reliance on a rival
Image: Reuters/Dado Ruvic
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When Apple unveils its next major iPhone, expected Sept. 12, one of its major competitors is likely to be cheering right along with the company’s devoted fans.

According to a report from Taiwan’s KGI Securities obtained by Apple Insider, the hardware company is relying on Samsung to supply the OLED displays that are expected to more efficiently power the next flagship iPhone. That means that if the device is a hit, Apple’s chief rival will enjoy a chunk of the riches.

The report adds that Apple’s dependence on Samsung comes at a hefty price—each display unit will cost between $120 and $130 per unit, KGI estimates. The LCD screens in Apple’s iPhone 7 and 6 series are much less expensive by comparison. The display for the iPhone 6 Plus, for example, cost $52.5 in September 2015, according to London-based research firm IHS Markit. The steep cost of the screen, which is typically the most expensive component in a smartphone, is likely one reason why Apple’s new phone is expected to be priced at nearly $1,000. Apple and Samsung didn’t immediately reply to queries from Quartz.

Access to more OLED screen suppliers would give Apple more bargaining power over Samsung, and perhaps help cut the price of its display units.

But right now, Samsung is the only company capable of manufacturing high-quality OLED screens at the scale that Apple needs. At present, the company controls about 89% of the total market for smartphone OLED displays, according to data from South Korea’s UBI Research. By 2020, even as other players increase their share and the overall market expands, it’s still expected to capture 72% of it.

Rival component manufacturers have been slow to acquire the technology necessary to churn out OLED smartphone displays at high volumes. LG is reportedly in talks with Apple to make and sell OLED screens for the company, but it currently lacks the necessary machinery and won’t be ready until 2019, analysts tell Bloomberg. Japan Display, which gets more than half of its LCD screen orders from Apple, also won’t be able to start mass-producing OLED screens until 2019, and is undergoing a major restructuring to prepare for the shift. Sharp, which Foxconn purchased in 2016 primarily for its display division, has only recently begun developing its own OLED technology, according to Jerry Kang, principal analyst at research firm IHS Markit.

“It will take a few years until Samsung’s competitors catch up with Samsung to overcome challenges they’re facing now with many materials and components,” he says.

Smartphone industry watchers have long expected a shift from LCD to OLED to take place. The latter technology produces thinner screens that don’t utilize a backlight, and in turn consume less power than LCD screens.

Samsung is set to reap the benefits from its dominance. Analysts expect the company’s profit increasingly to come not from its smartphones, but from components like screens and flash memory chips. So even if Samsung’s latest devices bomb, as other phone makers switch over from LCD as well, the company can still rest on its near-monopoly on OLED display to keep business healthy.

Investors in Samsung Electronics have long viewed this as as a reason to bet on the company. Its stock has enjoyed a rally on the Korea Exchange since early 2016, amid the explosive Galaxy Note 7 fallout and its executives’ convictions in South Korea’s presidential corruption scandal. Perhaps tellingly, after shares fell slightly this summer in the run-up to the sentencing of Lee Jae-yong, Samsung’s de-facto leader, the stock has since recovered, and is approaching its late-July peak. That could signify either a market correction, anticipation for the iPhone, or both.