Several years ago, Apple secured its future supply of flash memory with a big advance purchase, a few days ago we heard that Apple may have bought half of Samsung’s processor output and now we are told that the company has bought a 2-year supply of displays valued at about $3.9 billion. It’s not like Apple couldn’t afford it.
Apple iPhone 4
IHS iSuppli speculated that Apple approached LG, Sharp and Toshiba to secure is in-plane switching (IPS) mobile (retina) display supply for the iPhone and iPad. “In the era of the iPad and iPhone, the user interface-particularly the display and touch screen-has become the most critical competitive differentiator for tablets and smart phones,” noted Vinita Jakhanwal, director for small and medium displays at IHS.
“With sales of smart phones booming, and a flood of new entrants into the tablet market this year, competition among original equipment manufacturers (OEMs) for available supplies of high-end small and medium displays has reached a fever pitch, straining availability of critical types of displays,” Jakhanwal said. “Because of this, Apple has moved to invest some its enormous cash reserve in securing the supply of advanced displays.”
According to iSuppli, Apple spent nearly $2 billion for displays in 2010 – from Samsung, LG, Sharp and Toshiba. This new move could imapct every other mobile device manufacturer as those high-end IPS displays can only be built by those who have a license to it. As a result, supply is very limited. The alternative, AMOLED, which has been used in many Android phones is also short in supply and in a “state of critical shortage”, IHS iSuppli said. At present, Samsung Mobile Displays and LG Display represent the only sources for AMOLED panels, with Samsung Mobile Displays accounting for the vast majority of shipments.
“With Apple trying to invest in assuring IPS supply, and Samsung Electronics having preferential access to small- and medium-sized AMOLED supply, the rest of the smart phone makers are caught between the two giants,” Jakhanwal said. “This has left other OEMs to resort to other technologies when it comes to advanced displays, giving Apple and Samsung a huge edge in product differentiation in a highly competitive market.”
It appears that Apple will use its massive cash reserves to secure the long-term supply of components for its high-margin products. Apple is, due to its war chest, in an enviable position that will more than likely put its rivals under tremendous financial pressure.
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