Apple Partners with Samsung on Displays

Apple plans to cut ties to one supplier, but will be forced to use Samsung technology for its new phones. The iPhone manufacturer plans to switch to organic light-emitting diode (OLED) displays. The goal is to complete the switch for the release of the iPhone 8 this September. Currently, the technology suppliers who provide the company’s display technology are unable to meet Apple’s high production goals. Therefore the company may have to phase in new screens. This breaks with Apple’s pattern of introducing designs across all of its new products at once.

Apple and Samsung partner on the new iPhone 8 display screen.

Smartphone Developers Face Increasing Competition

With most smartphones offering a similar slate of features, the main selling points have turned to design and feel. For years, Samsung and Apple existed in different levels of the consumer market where the iPhones are designed for high-end users while Samsung, on the other hand, targeted entry and mid-level users. Nevertheless, as cellphone penetration deepens, smartphone companies are looking to increase market share in any way possible. This has led Samsung to develop the Samsung Galaxy S8. This is the first android phone to match the latest iPhone in terms of speed and screen quality.

Apple Reliant on Rival Samsung for Screen Technology

Samsung’s new marketing strategy means that OLED screens are in short supply. Due to Samsung’s size, Apple is not in a position to dictate terms of availability, as it does with many of its suppliers. Instead, Apple is waiting for its three other display providers to finish testing OLED units. Meanwhile, they must scrounge enough product from Samsung to produce at least one new iPhone version featuring the latest display technology in time for iPhone’s tenth anniversary in September.

Apple Forced to Rely on Third Party Suppliers

Apple has ordered between 70 and 100 million OLEDs from Samsung. The current high tech environment highlights the perils of relying on third parties to develop components. Apple prefers to control its supply chain, and frequently creates contracts which restrict how suppliers can distribute their merchandise. Many companies have refused to participate in this arrangement, because of the type of situation that occurred with Imagination Technologies Group Plc.

Imagination Technologies Loses Half Their Business Thanks to Apple

Imagination Technologies developed a graphics chip for Apple. Eventually the company’s relationship with the communications giant led to sales of more than $75 million annually. This accounted for half of the company’s earnings in 2016. Imagination Technologies experienced a true reversal of fortune on Monday, when Apple unexpectedly announced that they would stop working with the supplier within two years. Imagination Technologies stock prices dropped by more than two-thirds almost immediately.

Relying on a Single Client Leads to Disaster

The chip designer has already advised that they will be negotiating royalties with Apple, as it is unlikely that iPhone chips can be created without using the Imagination Technologies patents, at least tangentially. Still, this will probably turn into an expensive lawsuit, while doing nothing to add new customers. To prepare for this possibility, manufactures must appeal to a larger number of smartphone developers. Imagination Technologies is not the only company to fall victim to this mentality. Both Dialog Semiconductor Plc and Cirrus Logic Inc. make at least 70 percent of their sales from Apple.

Did Apple Sink Imagination Technologies on Purpose?

Of course, some industry analysts are suggesting that the Apple announcement and subsequent price dive was part of Apple’s plan to seize control of its pipeline. Apple is a major investor in Imagination Technologies, owning 8 percent of the shares. Even prior to the price reduction, Apple had enough capital to make a credible acquisition offer. Additionally, in a move that echoes the lawsuit filed by Google against Uber, Apple has already begun poaching members of the Imagination Technologies engineering team, in what is obviously a play towards creating a similar design while trying to avoid duplicating the smaller manufacturer’s intellectual property.

How Will Apple’s Manufacturing Decisions Affect Trading?

Both Apple and Samsung should see their share prices increase. Apple is likely to get a very good deal on its graphics chips if the price per share of Imagination Technologies continues to fall. Samsung is getting good reviews on the Galaxy 8, and has already locked down a significant investment from Apple for their iPhone 8 displays. Given the representation of the DOW and S & P 500, it is likely that both of these indices will also go up.