Increasing galloping prices could help Apple maintain profits despite declining sales. However, the sluggish iPhone still pushes the US company into a situation where it may have to pay contract compensation, hundreds of millions of dollars.
Korean media today reported that Apple and Samsung Display, Samsung's screen manufacturing division, are conducting negotiations on contract compensation. Both signed a contract to supply the OLED display for the iPhone, in which the Apple side had to ensure a certain amount of panels were produced. And Samsung must ensure adequate production and quality of the plate. However, Apple has failed to cover the product, and Samsung has a quality problem with some panels sold to Apple.
Raising the selling price makes it difficult for OLED iPhone models to consume
According to industry sources and securities companies, the two are trying to discuss to minimize each other's losses. Apple 's contractual fines could amount to hundreds of millions of dollars, and they have yet to find any specific direction. Stemming from Apple's request, Samsung has invested in expanding the A3 plant for more than two years. It can produce 105,000 sheets of glass each month thanks to the Gen 6 chain, then cut it into smaller panels. This is the line Apple for Apple only bảo to ensure every year about 100 million OLED panels for smartphones.
However, since Apple moved to OLED screen on iPhone, no model has been successful in sales. As a result, Samsung Display's production activities at A3 factory were continuously cut down, when Apple announced the order reduction. Never had the line run more than 50% until recently, even falling to the lowest level of 10%. Samsung Display suffered a significant decline in revenue from the sluggish iPhone and Galaxy high-end phones. In the last year, they achieved operating profit of only $ 2.26 billion, nearly half of that of 2017, reaching $ 4.66 billion. Worse, the first quarter of this year recorded a loss of $ 480 million, the first time in three years.
The iPhone is sluggish, Apple cuts orders so Samsung factory only operates at 10% perfunctorily
Initially when signing an exclusive supply contract for Apple, everyone thought this was a great victory for the Korean company. The competitors like BOE, LG Display cannot catch up with the output and quality, so they cannot compete with such large orders. Even Apple is confident in the iPhone using OLED screens to the point, requiring Samsung to expand production. However, sales were then lower than US companies' expectations. Following their partner is dealt a critical blow and is forced to ask for contract compensation.
According to industry, Apple has never paid a penalty if it did not guarantee the agreed volume of consumption. In addition to Samsung, they also signed contracts with LG Display and JDI. The company often recommends covering the background of another product line to compensate, instead of actually paying. And in fact, industry sources say that Samsung also has to pay a fee because of a faulty background delivered to Apple. So they are working to both pay the lowest penalty.
Some said that Samsung actually received hundreds of millions of dollars from Apple. If this is the case, their Q2 business performance may improve. However, Samsung Display refuses to share details about customers and contracts, so no one is sure how the two companies have settled.