LG, Apple, and the iPhone
The Korean press has been indicating that LG Display (LPL) has received a request from Apple (AAPL) to supply flexible OLED displays for the iPhone 8 in 2018, on which they will decide at a special board meeting in June. “We have received a request to take part in a bid for receiving an order for small and medium-sized OLED’s from Apple”, stated a senior LG Display official. “At the end of June we will make a decision based on OLED production technology, capacity and the accompanying investment volume in an extraordinary board meeting.” This seems a bit ludicrous, as we would expect that Apple and LG Display have been discussing this topic for many months, given that LG Display is Apple’s largest LCD display supplier and has already established an ‘OLED relationship’ with Apple by supplying the OLED displays for the Apple Watch.
LG Display has a significant stake in the Apple/OLED space as they have the potential for a significant share loss as Apple shifts the iPhone development path toward OLED, and while not the only supplier at risk (Japan Display (6740.JP) is also a large-scale supplier of LCD displays to Apple), they at least, have the experience to be considered as an OLED supplier, but here’s where it gets a bit more complex. Samsung Display (pvt) is already ramping OLED fab capacity to supply Apple with OLED displays for the iPhone this year, and has very significant capabilities in the manufacturing of small panel OLED displays. Of course, Apple would like two suppliers, or at the least, a backup supplier, and few panel producers, and even fewer OLED producers have the potential resources to build out capacity for Apple, but the deeper question concerns flexible displays, which have yet to reach the commercial market.
Samsung Display produces a ‘conformed’ display, which is technically not a flexible display as the shape is set during production and cannot be changed by the user, so a truly flexible display, one that can be bent or twisted is an animal that has yet to be commercialized. There have been a few ‘almost’ flexible phones, which tend to be slightly curved, rather than flexible, but no display company has released a truly flexible smartphone display. This gives LG Display an edge against its more experienced OLED rival, the edge being that they can directly compete with Samsung Display on what would be a more level playing field, flexible OLED displays. So the question for LG Display is not, “Should we?” but “Can we?”
Even the wording from LG Display indicates that questions remain as to whether LG Display’s flexible OLED technology is ready for mass production, whether they can build out the necessary flexible OLED capacity, and how such expansion would be financed. Despite these very significant questions, when faced with the loss of a portion of a major customer’s business, display manufacturers tend to answer ‘yes’ to all questions and worry about the details later, not always as successfully as both parties might want. Display shortages at product release time have plagued all display manufacturers including Samsung Display, but those come later, after the deal has been signed and commitments made. The appropriate answer to the pseudo-question, “Can you jump”, would not be “Yes, Sir”, but “How high, Sir?” in LG Display’s case. We note that Apple has pre-paid product revenue to LG Display in the past, which has helped to relieve the financial burden of capex related specifically to the development and production of Apple display products (the ethereal ‘retinal’ display), so even the financial portion of the decision is a bit less risky than might be assumed. All in however, the real question is whether LG Display believes it can meet Apple’s specs in a high volume environment within the timeframe specified, which puts the burden on manufacturing and R&D management’s ability to predict the future. While we certainly cannot answer the question specifically, we would expect that the answer will be ‘yes’ regardless of the actual circumstances.
LG Display has a significant stake in the Apple/OLED space as they have the potential for a significant share loss as Apple shifts the iPhone development path toward OLED, and while not the only supplier at risk (Japan Display (6740.JP) is also a large-scale supplier of LCD displays to Apple), they at least, have the experience to be considered as an OLED supplier, but here’s where it gets a bit more complex. Samsung Display (pvt) is already ramping OLED fab capacity to supply Apple with OLED displays for the iPhone this year, and has very significant capabilities in the manufacturing of small panel OLED displays. Of course, Apple would like two suppliers, or at the least, a backup supplier, and few panel producers, and even fewer OLED producers have the potential resources to build out capacity for Apple, but the deeper question concerns flexible displays, which have yet to reach the commercial market.
Samsung Display produces a ‘conformed’ display, which is technically not a flexible display as the shape is set during production and cannot be changed by the user, so a truly flexible display, one that can be bent or twisted is an animal that has yet to be commercialized. There have been a few ‘almost’ flexible phones, which tend to be slightly curved, rather than flexible, but no display company has released a truly flexible smartphone display. This gives LG Display an edge against its more experienced OLED rival, the edge being that they can directly compete with Samsung Display on what would be a more level playing field, flexible OLED displays. So the question for LG Display is not, “Should we?” but “Can we?”
Even the wording from LG Display indicates that questions remain as to whether LG Display’s flexible OLED technology is ready for mass production, whether they can build out the necessary flexible OLED capacity, and how such expansion would be financed. Despite these very significant questions, when faced with the loss of a portion of a major customer’s business, display manufacturers tend to answer ‘yes’ to all questions and worry about the details later, not always as successfully as both parties might want. Display shortages at product release time have plagued all display manufacturers including Samsung Display, but those come later, after the deal has been signed and commitments made. The appropriate answer to the pseudo-question, “Can you jump”, would not be “Yes, Sir”, but “How high, Sir?” in LG Display’s case. We note that Apple has pre-paid product revenue to LG Display in the past, which has helped to relieve the financial burden of capex related specifically to the development and production of Apple display products (the ethereal ‘retinal’ display), so even the financial portion of the decision is a bit less risky than might be assumed. All in however, the real question is whether LG Display believes it can meet Apple’s specs in a high volume environment within the timeframe specified, which puts the burden on manufacturing and R&D management’s ability to predict the future. While we certainly cannot answer the question specifically, we would expect that the answer will be ‘yes’ regardless of the actual circumstances.
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