As the single largest purchaser of small device displays, Apple wields enormous power over the screen manufacturers. Its main suppliers – Samsung, LG, Japan Display and Sharp – all create specialized designs and even processes to support the iDevices. To date, the company has stuck with LCD technology for its iPhone displays, but may switch to OLED – as used by most of its high end smartphone rivals – from 2018, and even earlier for the iPad. That, in turn, could prompt another shake-up in the already precarious small display sector.
Last week, shares in Japanese component vendors slid on reports that Apple would adopt OLED iPhone displays in 2018, a decision which would probably accelerate the ongoing movements away from LCDs by other OEMs too. Samsung has been the leader in mobile OLED screens, and of course controls the supply for its own handset unit as well as dominating the wider market. However, its lead is being eroded by investments in OLED from LG and several Chinese and Japanese competitors.
If Apple does leap, the broader choice of suppliers will be one factor influencing its choice. While Samsung, its arch-rival in smartphones, controlled the OLED field, it had a real incentive to stay away from that technology, rather than increase the amount of business it gives to the Korean firm (which already manufactures many of its processors and is a major memory vendor). So Apple used its power to support other companies in pushing LCD technology to its limits in terms of screen resolution, color intensity, performance and so on.
If it moves to OLED – as it has already for the Apple Watch – it will hit a whole supply chain. One of the Japanese firms which saw its value fall on the reports was Minebea, which makes backlights for LCDs, while another was Nitto Denko, a supplier of film. In general, LCD displays use more components than OLEDs, because they need color filters and backlights, so the industry shift away from them, as the OLED market gets more competitive and affordable, will be a negative for many of these specialized technologies.
The reports, in Japan’s Nikkei newspaper, of an OLED iPad in late 2016, and an iPhone in 2018, will spur Samsung rivals on to bigger investments. LG Display recently said it would spend over KRW10 trillion ($8.7bn) on building a new plant and expanding production of OLEDs for smartphones, smartwatches and in-car displays as well as larger items like TV screens.
The new plant will go into production in the first half of 2018, which few believe is coincidental timing. “Today’s announcement implies that the potential timing of Apple’s adoption of OLED screens is set,” said Claire Kim, an analyst at Daishin Securities. Apple is LG Display’s largest customer, accounting for 25% of its sales, but the firm has been suffering from falling demand across its business in recent quarters, despite being the world’s second largest OLED producer.
The global OLED market is forecast to climb to $29.1bn by 2022, from $13bn this year, LG said, citing research by IHS.
Until other Apple suppliers catch up in the OLED space, it is likely to have to keep Samsung in play too, in order to support the vast numbers of iPhones it usually sells. A bigger contract with Apple would be very welcome news for Samsung Display, which already makes the Apple Watch OLED and supplies other Apple screens. Samsung has been pushing to reduce its reliance on smartphones, amid intense pressures on that business, and generate more revenues from screens, chips and other components.
In April, Samsung was reported to have created a team of about 200 people dedicated to designing a mobile display specifically for Apple (probably for the iPad). An exclusive screen design would certainly help to tempt Apple back from the alternative display providers in which it has been investing in recent years – its efforts to reduce reliance on Samsung have included shoring up the ailing Sharp, making a $1bn pre-payment to Japan Display, and buying from multiple other vendors including LG (which is also said to have set up a dedicated team for its largest customer).
Like Samsung itself, Apple is keen to assert control over its key components to ensure these are unique, and can differentiate the iDevices in an overcrowded market. This has seen the company design its own processors and demand special treatment from its suppliers. Two years ago, for instance, it failed (along with Qualcomm) to get priority access to fab capacity from TSMC, to guarantee supply of chips. An exclusive screen – given the importance of the display in differentiating smartphones and tablets – would be a significant advantage.
Analysts believe Apple will stay with LCD for the ‘iPhone 7’ and possibly ‘iPhone 8’, relying heavily on its recent deal with Japan Display, which has the capacity to produce almost 100m 5-inch LTPS LCD panels a year, according to JP Morgan analyst Narci Chang. Japan Display plans a new $1.4bn LTPS LCD plant in central Japan, which Apple will partly fund, in return for priority, or even exclusive, access to the factory’s output. iPhone manufacturer Foxconn has also reportedly invested $2.6bn in LCD production this year.
In the short term, then, a rejuvenated iPad is likely to be the reason for the new Samsung deal, but could also benefit Japan Display, which last summer formed a joint venture with Sony and Panasonic called Japan OLED. This is focusing initially on OLED displays for tablets, laptops, signage and other medium-sized applications and Korea’s ETNews says Apple is in talks with the venture, which will begin mass production in 2017. It is building a 6-Gen AMOLED fab with a reported capacity to supply 5.5m 9.7-inch tablets (though only at 100% yield).
Sharp has been a beneficiary of Apple’s bid for greater control of its display supply chain, since the iPhone maker has, along with Qualcomm and others, helped to finance the ailing Japanese vendor in return for good access to its advanced LCD technologies. Sharp continues to look for ways to right its listing ship, and said this week that it may spin off its small and mid-sized LCD panel activity with an $840m investment from state-backed Innovation Network Corporation of Japan (INCJ). That would give INCJ about 40% in the subsidiary, and could stabilize its business and help it stay relevant to customers like Apple.
INCJ is backed by about 25 Japanese companies including Sony, Hitachi and Toshiba. In 2012, it helped launch Japan Display, which united the small and mid-sized display businesses of those three firms. Foxconn has indicated it may be willing to revive plans to take a stake in Sharp in order to further its own LCD ambitions, which would be another route to influence for Apple, via its largest assembler.