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Apple (NASDAQ: AAPL) and Samsung (NASDAQOTH: SSNLF) are fierce rivals in the smartphone market, but the latter still supplies displays and memory chips for the iPhone maker. The iPhone X, which was launched nearly two years ago, included $110 in Samsung components, according to The Wall Street Journal.
Apple gradually reduced its dependence on Samsung by tapping other chip suppliers and producing more first-party components, but most of its current-gen iPhones still use Samsung's OLED screens. The details of the contract weren't disclosed, but it reportedly included a sales target guarantee for Samsung.
Image source: Apple.
Apple's iPhone X and XS devices, which both sport Samsung's OLED screens, didn't sell well due to the saturation of the smartphone market, long upgrade cycles, a lack of compelling new features, and competition from the cheaper iPhone XR, which used a cheaper LCD screen. Apple repeatedly cut orders for the two higher-end devices, which recently caused Samsung to demand compensation for unfilled OLED orders.
Apple reportedly complied, according to South Korean outlet ETNews, and paid Samsung 800 billion won ($681 million) for its trouble. The report was supported by a footnote in Samsung's earnings guidance for the second quarter, which included "a one-time gain related to the display business."
What does this mean for Apple?
That $681 million represents less than 0.3% of Apple's projected revenue this year, so it's safe to say that this one-time payment won't hurt the tech giant. However, recent reports claim that Apple might add OLED screens to other future devices -- like the MacBook Pro and iPad -- to appease Samsung.
However, KGI Securities analyst Ming-Chi Kuo believes that Apple's next-gen MacBook Pros and iPads will use microLED screens instead of OLED ones. This indicates that MacBooks and iPads using Samsung's OLED screens probably won't appear in the near future, if at all.
It's unclear if Apple's one-time payment squares things with Samsung, but it highlights two issues with its hardware business. First, Apple is too dependent on smartphone rivals like Samsung and LG for displays. It's reportedly developing its own microLED displays to cut them out of the loop, but Samsung -- which has much more experience in the display market -- is also producing its own microLED screens. If Apple's first-party displays fail to match Samsung's quality, it could be a costly and humbling mistake.
Second, Apple's sluggish iPhone sales weaken its clout with suppliers. In the iPhone's heyday, Apple could easily secure sweetheart deals from smaller component makers. But with a company like Samsung, which dominates the display and memory chip markets, Apple is in a weaker position -- especially if it can't even meet its own sales targets. That's why Apple is constantly touting the expansion of its services ecosystem as its hardware sales decelerate.