Apple Pays Samsung an Estimated $950 Million for Missing OLED Panel Purchase Targets

[happyprozak]

It's crazy that Apple entered into a contract to either pay for buying the panels...or pay for not buying the panels.

Seems like it'd make a lot more sense to buy the panels either way, and just use them as needed. They'll be selling iPhone XS, XS Max, 11 Pro, etc. for years to come. Might as well spend the money on something tangible that you can eventually make your money back on.

It's not crazy at all if you take a look at the other side, Samsung. Samsung has to invest in building infrastructure in order to produce and meet the supply Apple demands. There is a sizable investment that Samsung has to make so they seek a guarantee from their partner, Apple, that Apple is going to place an order for a certain amount of displays.

If Samsung deems the risk of building the infrastructure too high then Samsung can simply say no and tell Apple they can only meet 60% of Apple's demand. Apple can then source displays from other manufacturers but what if other manufacturers cannot supply the other 40%? They have to go back to Samsung and strike out an agreement.

Obviously, I do not know how the negotiations went but now that you know that Samsung had to invest money to build out the infrastructure, you can see that there is another side to the story.

Apple could have negotiated with Samsung and told Samsung they weren't willing to offer a guarantee but Samsung is not a small player, they can be cunning and smart just like any other corporation.

 

[CarletonTorpin]

To whoever created the Featured Image for this article: Bravo.

 

[Glideslope]

Apple could try some creative accounting for Fiscal 2020 due to the Mandated Shutdowns by Governments.

I'm sure Luca and his team already have a strategy.

 

[HiVolt]

Unbelievable! Samsung is killing Apple's margins! Apple better do something quick and improve margins or shareholders will revolt! Go back to LCDs if they have to! I don't care. Just bring your display margins down!

Yeah, they're getting rid of the charger & earbuds to compensate. Don't worry. Timmy aint no fool.

 

[Hieveryone]

From Samsung’s POV, they received an order to make X displays, they want assurance that Apple will purchase X displays. What Apple does with them is not Samsung’s business.

Such a clause would probably serve to increase the cost per display, since there is now a chance that Apple won’t have to buy anything, and this will simply be factored into the final price.

I agree if they agreed to buy X many they should buy X many BUT if an asteroid, global pandemic, etc were to happen how can Samsung hold Apple to it?

 

[sirozha]

there's no act of god clause in there?! insurance companies have been using that BS for years...

COVID-19 is an act of Devil. No clause like that.

 

[Abazigal]

I agree if they agreed to buy X many they should buy X many BUT if an asteroid, global pandemic, etc were to happen how can Samsung hold Apple to it?

It’s either that or Samsung be saddled with excess screens they have no use for (especially if only Apple uses that particular design). Someone has to left holding the buck. It just so happens to be Apple in this case.

I suspect the contractual obligations was what allowed Apple to buy those screens at the best possible price they could negotiate. Add in additional escape clauses and the final price will likely increase.

From a risk assessment POV, it was probably easier for Apple to just say - you know what, I will take them all regardless of whether I have a use for them or not. Than spend extra time wrestling over these minor details. In the long run, I am going to assume that Apple came out ahead (ie: lower prices overall compensate for the extra 1 billion they had to pay in this case).

 

[UltimateSyn]

To whoever created the Featured Image for this article: Bravo.


View attachment 933667

Seriously, I just came to say this. They should use it in the article itself instead of just the banner.

 

[damphoose]

And in turns those aren't really penalty either. Apple will received discount on their next order. So the $950 million value will be back to Apple anyway. These are pretty much standard practice in the Supply Chain. ( Unless Samsung doesn't want to do business with Apple any more )

Finally. It only took until page 3. You win the internet today. The rest of you amateur supply chain managers can take the day off.

 

[damphoose]

Pandemics aren't acts of God. Earthquakes, fires, tornadoes, etc., would qualify (and who knows what the contract even says?), but a pandemic likely isn't included and wouldn't qualify as an act of God/force majeure in most jurisdictions.

You listed fire as an Act of God. Most fires are man made and certainly not ruled AoG. Even forest fires are usually traced to arson and not classified as AoG.

Force Majeure (totally different from Act of God) can be anything ruled “unforeseen circumstances“. Since its been 100 years since the last pandemic we don’t have legal precedent yet. But wars have been ruled force majeure in the past and there will certainly be lawsuits about Covid19. In short it is uncertain wether covid19 will be legally classified as force majeure.

The reason Apple cannot use either of these clauses/loopholes is because the contract would not take into account what Apple sales are. That is irrelevant. The contract is not tied to Apple sales. Covid is not stopping Apple from buying screens. Apple doesn’t want to buy screens because of a Covid. Big difference. Apple still has the capacity to fulfill the contract (the money). An AoG or FG has to be directly tied to your ability to fulfill the contract to apply.

 

[stylinexpat]

I don't see how Apple could meet earnings reports of 2nd quarter or 3rd quarter with this current economy. This aside the stock hit $400 before dropping today. $400 was a bit on the absurd side if you ask me. This should be below $300 now but as people short it will go higher to squeeze out shorts. If they report honestly their numbers will be off and miss but if they lie then stock continues to shoot up.

 

[ian87w]

It's crazy that Apple entered into a contract to either pay for buying the panels...or pay for not buying the panels.

Seems like it'd make a lot more sense to buy the panels either way, and just use them as needed. They'll be selling iPhone XS, XS Max, 11 Pro, etc. for years to come. Might as well spend the money on something tangible that you can eventually make your money back on.

It's normal in business contracts to state a minimum purchase, in lieu of priority of supply/inventory.

I'm guessing the covid outbreak slowed down the production much earlier than what Apple planned. And/or the outbreak diminishes demand. Considering Apple being very strict in their inventory, I'm guessing Apple decided it's better for them to just pay up the minimum than having excess inventory.

 

[stylinexpat]

Probably why Apple is still using that 10 year old lightning port on that iPhone I wonder how much old inventory stock they still have sitting there still trying to sell it as they push everyone the Same old and slow lightning port on all new iPhones.

 

[unplugme71]

This is fake. All contracts stipulate war, terror, disease are reasons to not be liable for. Covid 19 absolutely fits this.

If Apple did pay, it’s likely for new iPhones. Not missing sales.

 

[0924487]

Apple needs Samsung! Apple could have made more! Apple really needs to release the new iPhone in 2020 sooner than later.

buying too many iPhone 11 Pro Max display panels that are going to be worthless after iPhone 12 Pro comes out is not a good strategy. That payment is mostly due to display technology licensing, customization and R&D sunk cost Apple must pay either directly in lump sum payment or by ordering enough display panels to offset Samsung's cost.

 

[unplugme71]

It's normal in business contracts to state a minimum purchase, in lieu of priority of supply/inventory.

I'm guessing the covid outbreak slowed down the production much earlier than what Apple planned. And/or the outbreak diminishes demand. Considering Apple being very strict in their inventory, I'm guessing Apple decided it's better for them to just pay up the minimum than having excess inventory.

force majeure

 

[steve09090]

Unbelievable! Samsung is killing Apple's margins! Apple better do something quick and improve margins or shareholders will revolt! Go back to LCDs if they have to! I don't care. Just bring your display margins down!

Apple value = $1.3 Trillion
Samsung value = 0.28 Trillion

nothing to see here...
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Apple needs Samsung! Apple could have made more! Apple really needs to release the new iPhone in 2020 sooner than later.

Just think about how Apple needed Intel when they were charging too much.

 

[PickUrPoison]

I don't see how Apple could meet earnings reports of 2nd quarter or 3rd quarter with this current economy. This aside the stock hit $400 before dropping today. $400 was a bit on the absurd side if you ask me. This should be below $300 now but as people short it will go higher to squeeze out shorts. If they report honestly their numbers will be off and miss but if they lie then stock continues to shoot up.

Apple withdrew 2nd quarter guidance in mid-Feb and issued no guidance for the 3rd quarter. The numbers will be what the numbers will be.

 

[star-affinity]

I pray that the stock price doesn't get hit.

I'd you do and it works, would the stock price not getting hit count as an act of God? 🤔🙂

COVID-19 is an act of Devil. No clause like that.

Maybe start adding act of the Devil as a clause then? 🤔🙂

 

[mi7chy]

The positive from this is the next model won't be sharing the same display so hopefully that means smaller notch or even notchless.

 

[aevan]

Seems like a waste of resources.
Just go back to LCDs. Nobody can I can't tell the difference anyway.

FTFY

(Though Apple LCDs are still great)

 

[vladi]

Hardly anyone has 10 bit monitors. Generally only graphic designers because they are so expensive. No phone would ever go to 10bit LCD. Makes zero sense.

10bit LCD is already present on mobile devices. Sony 1080p XZ2 screen is 10bit, their 4K LCDs (XZ Premium & XZ2 Premium) are also 10bit panels. Sharp has 10bit as well. Blacks are super deep on these, not OLED like of course but very close something like black theme on OLED that doesn't turn off pixels.
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Apple likely has an annual purchasing quota, so buying more than they need this year would just mean they'd have too many panels on order next year unless they saw an increase in iPhone sales to cover the excess. This is unlikely considering how iPhone sales have generally stabilized (and there would also be all the other components Apple would need to make those phones beyond just the panels).




If they had used LCD instead of OLED, the "spec hounds" would be baying all over this forum how the iPhone X / 11 / 12 was "crap".




Pretty much.

Apple uses their own optimization of Samsung's panels through a proprietary precision display calibration. The result is the best OLED smartphone panels available and they are exclusive to Apple. Hence why Apple and Samsung have this minimum purchase clause.

Apple uses their own controllers and drivers for the panel, that's what makes the difference. What I don't like about it is that they traded PWM for peak brightness (PWM is super noticeable on X model). They also develop uniformity issues because their displays bend at the edges but that's standard OLED affair.

Gamma tracking independence from brightness is the most important aspect in color accurate displays. This means that you can crank up the brightness as much as you like but color remains accurate because it doesn't affect gamma. That's why many Android flagships who claim color accuracy and super high brightness only offer one at the time. You can't have color accurate display with burning nits of brightness in their cases. Once you pick color accurate mode their brightness barely goes above 400 while in so called "vivid" modes it goes up to 1000.

 

[Abazigal]

I don't see how Apple could meet earnings reports of 2nd quarter or 3rd quarter with this current economy. This aside the stock hit $400 before dropping today. $400 was a bit on the absurd side if you ask me. This should be below $300 now but as people short it will go higher to squeeze out shorts. If they report honestly their numbers will be off and miss but if they lie then stock continues to shoot up.

Then they just won’t. Many companies are bleeding from the impact of closing the economy due to the pandemic. I see a silver lining in higher sales of iPads and Macs due to the WFH arrangement this pandemic has brought on, which should go some way towards offsetting lower iphone sales (which are typically already at their lowest leading up to the announcement of the next iphone anyways).

Either way, this is just one quarter, and Apple’s fundamentals remain sound enough to let it weather this current storm.

 

[levifig]

It's crazy that Apple entered into a contract to either pay for buying the panels...or pay for not buying the panels.

Seems like it'd make a lot more sense to buy the panels either way, and just use them as needed.

That's not how supply chain works. Apple doesn't store components at scale: they are bought and delivered between production lines. Storing and maintaining that level of stock would have cost Apple more than these fees, which is why the clauses exist in the contracts in the first place…

You're mistake is assuming that because you don't understand it doesn't make sense. 😉 I'd venture saying Apple's supply chain and purchasing team knows a bit more about this stuff than us, random internet commenters on a rumors website… 🙄

 

[I7guy]

…
You're mistake is assuming that because you don't understand it doesn't make sense. 😉 I'd venture saying Apple's supply chain and purchasing team knows a bit more about this stuff than us, random internet commenters on a rumors website… 🙄

Not to sure about that.