Samsung Display and Apple Going through a Penalty Issue

Jun 21, 2019

Samsung Display and Apple are having a psychological warfare regarding a penalty issue. Apple is currently in a situation where it has to pay Samsung Display hundreds of millions of dollars in penalty. This is because Apple signed a contract with Samsung Display to secure certain amount of supplies of flexible OLED panels for its new iPhones and greatly fell short of this contract. However, Samsung Display is also going through an issue where some of its panels that were supplied to Apple experienced quality issue. As a result, both businesses are looking for a way to minimize damage.
According to industries and stock firms, it is heard that Samsung Display had had many discussions to solve a penalty issue that is worth hundreds of millions of dollars but have yet to find a clear solution.
Cause of the issue is supply of flexible OLED panels. According to Apple’s request for supply, Samsung Display had invested into A3 plant over two years. A3 plant, which can produce 105,000 6th generation flexible OLED panels per month, was constructed ‘exclusively for Apple’. The exact amount that Apple guaranteed from Samsung Display is not known. However, industries predicted that Samsung Display would produce about 100 million OLED panels for Apple annually.
However, sales of ‘iPhone X, which was Apple’s first OLED iPhone, and sales of the following OLED model did not meet Apple’s expectations due to low sales and high price respectively. As a result, operation rate of A3 line started to drop as amount of orders of OLED panels from Apple dropped faster than expectation. Operation rate fell to 10% at its worth and it is heard that the operation rate has not passed 50% even recently.
Actually, Samsung Display’s performance plunged due to lack of orders from Apple and lack of sales of Galaxy Smartphones. It made $2.26 billion (2.62 trillion KRW) in operating profit last year that is almost half of the operating profit in 2017 when it was $4.66 billion (5.4 trillion KRW).
Samsung Display is the only business that supplies flexible OLED panels to Apple. Although LG Display and BOE are also preparing to supply their products to Apple, industries believe that they are not currently at the level of threatening Samsung Display.
“Although Apple requested Samsung Display to extend its plant believing that it would use about 100 million OLED panels annually, actual market demand was far lower than Apple’ prediction.” said a representative for the industry. “Samsung Display took a huge blow as a result and requested a penalty from Apple according to their contract.”

Vice-President Philip Schiller of Apple introducing iPhone X at an Apple keynote that was held in September of 2017.  (Reference: Apple) <Vice-President Philip Schiller of Apple introducing iPhone X at an Apple keynote that was held in September of 2017. (Reference: Apple)>

Apple currently has supply contracts for LCD panels with LG Display and JDI (Japan Display). Although these contracts have terms that give rights to these manufacturers to ask for penalties from Apple, industries state that Apple almost never paid penalties these panel manufacturers. It is heard that Apple usually made a suggestion of guaranteeing supply of panels for other products rather than actually paying a penalty.
“It is heard that Apple made some suggestions such as guaranteeing supply of OLED panels for other Apple products.” said a different representative for the industry. “Samsung Display was also levied a small penalty due to faulty performance of few panels that were supplied to Apple and they are looking into many options as they both have to pay each other a penalty.”
Some heard that Samsung Display actually received hundreds of millions of dollars in penalty from Apple already. If it did receive a penalty from Apple, there is a chance that its performance will improve as the corresponding penalty will be applied to its operating profit in the second quarter.
“It is difficult for us to make information regarding our customers public.” said Samsung Display. “We cannot also disclose information regarding our performance as we have yet to announce our performance for the second quarter.”
Staff Reporter Bae, Okjin | withok@etnews.com

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