After years of battling Apple Inc in courtrooms and retail stores, Samsung Electronics Co might be ready to offer an olive branch that is expected to cost the South Korean company almost US$9 billion upfront.
Samsung is in talks with Apple to be the exclusive supplier of displays for iPhone models scheduled for release next year, according to people with direct knowledge of the matter.
Samsung first needs to spend money expanding its capacity to manufacture the technology, which is thinner, brighter and less draining on batteries than those in most current smartphones.
Photo: Bloomberg
The potential deal to supply Apple with OLED screens — first reported by the Maeil Business Newspaper — might help Samsung reverse two years of dwindling smartphone market share, revenue and net income.
The consumer-electronics giant in January warned of a gloomy year, so locking in Apple might attract Chinese smartphone vendors wanting to upgrade their devices to stay competitive.
“It looks like a huge investment risk for Samsung at first, but it will pay off handsomely,” said Greg Roh, an analyst at HMC Investment Securities in Seoul. “Once Apple adopts the new display, others can’t help but follow.”
Subsidiary Samsung Display might spend at least 10 trillion won (US$8.7 billion) beefing up OLED capacity, the Maeil reported, citing sources it did not identify.
Apple sold more than 231 million iPhones last year, while Samsung Display made about 3 million screens a month. Just to keep pace, Samsung would have to boost production by a factor of at least six.
Samsung Electronics owns 85 percent of Samsung Display as part of an intricate web of cross-shareholdings within the conglomerate.
Samsung Display, which is based in Yongin, declined to comment in an e-mail.
Apple did not respond to a request for comment.
Samsung Electronics is to report audited first-quarter results, including net income and divisional performances, today.
Analysts estimate profit of 4.42 trillion won, or a 2 percent decline from a year earlier, according to data compiled by Bloomberg.
Samsung rose 0.3 percent to 1,300,000 won in Seoul yesterday. The stock has risen 3.2 percent this year after posting three straight annual declines.
Samsung posted better-than-expected preliminary operating profit of 6.6 trillion won on April 7 after releasing its Galaxy S7 phones about a month earlier than usual to capitalize on the lull in new Apple products. First-quarter sales of 49 trillion won slightly exceeded analysts’ estimates.
In the past four weeks, eight analysts raised their profit estimates by an average of 281.1 billion won.
“It’s great news for Samsung,” Seoul-based HI Investment & Securities Co analyst Chung Won-suk said of the potential Apple supply deal. “Samsung will exclusively get the initial orders from Apple in late 2017 for the flagship lines and it will get the price premium.”
Making a multibillion-dollar commitment to Apple has not always worked out for suppliers. In 2014, GT Advanced Technologies Inc filed for bankruptcy after it could not produce sapphire screens of usable quality for iPhones.
Filings by GT Advanced called the terms of its deal with Apple “onerous.”
Samsung vice chairman Lee Jae-yong is trying to accelerate a diversification beyond phones, which depend on Google’s Android operating system and compete with hundreds of Chinese makers, including Huawei Technologies Co (華為), Xiaomi Corp (小米) and Lenovo Group Ltd (聯想). The mobile division generated 103.6 trillion won in sales last year — or 52 percent of Samsung’s total, the company said.
Global smartphone sales are expected to increase by just 7 percent this year, the slowest rate in the product’s history, according to Gartner Inc.
About 150 million users in Asia will delay upgrading in the next three years while they wait for prices to come down, the researcher said.
Sales of another key product for Samsung — TVs — declined 0.3 percent last year and are only expected to grow by 3 percent this year, helped by the Summer Olympics in Rio de Janeiro. The sluggish growth is affecting Samsung shares, which have declined 6.8 percent during the past 12 months.
During the same period, Apple shares plunged 21 percent.
Sales will fall for a second straight quarter, a forecast that missed analyst estimates, as growth stalls in the smartphone market, the company said on Tuesday.
The lower-cost iPhone SE released last month targeted new customers in emerging markets, such as China and India.
Samsung gets about 4.8 percent of its 200.7 trillion won in revenue from supplying Apple, according to data compiled by Bloomberg.
At least three Samsung Group companies provide the Cupertino, California-based company with displays, memorychips and batteries.
Sales of OLED displays should almost double to 21.5 trillion won next year from 11.2 trillion won last year, Seoul-based BNP Paribas SA analyst Peter Yu said on April 15.
Top-of-the-line Galaxy smartphones also should start using the displays next year, Yu wrote in raising his price target on the stock.
Samsung was one of the biggest makers of chips and displays for Apple until the companies started suing each other in 2011 over alleged patent infringements.
Samsung invested in a flash-memory factory after Apple said it wanted to switch from hard-disk drives in its iPods. Yet that relationship progressively soured, and Apple depended on alternative suppliers, including LG Display Co, Sharp Corp and Japan Display Inc.
Those rivals have come to depend on work for Apple and in each case are its biggest customer. Apple generates 42 percent of Japan Display’s sales, 31 percent of LG Display’s and 20 percent of Sharp’s, according to data compiled by Bloomberg.
In 2014, Apple and Samsung dropped all lawsuits against each other outside the US, with Samsung agreeing in December to pay US$548 million, and last year, Samsung created a standalone team of about 200 employees working exclusively on Apple products, people familiar with the matter have said.
“When Apple starts adopting the new screens for its iPhones from 2017, that will be the trigger to change the whole smartphone industry landscape to OLEDs,” Seoul-based BNK Securities Co analyst Park Ki-bum said. “If the world’s two biggest smartphone makers are leading the technical changes, it is almost certain that Chinese brands will follow their path.”
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