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Why Apple Could Be Grooming LG for OLED Supplies

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Apple to use OLED screens in more devices

Apple (AAPL) could be working with LG Display (LPL) to supply it with the OLED (organic light-emitting diode) screens to be used in some of the iPhones coming out this year. There have been a lot of media reports to this effect, with the Financial Times reporting that shares of LG Display surged to a one-month high following news that it was getting a piece of Apple’s OLED business.

Apple first adopted OLED screens for its smartphone products in the iPhone X, which went on sale in November 2017. The company is expanding its use of OLED screens in iPhones, with two of the three iPhones it has planned for this year said to come with OLED displays.

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Diversifying OLED screens supply chain

OLED screens have several advantages, such as better display quality and quicker response time, compared to LCD screens. OLED screens are more expensive, though, and on top of this, there aren’t many suppliers of such screens that meet Apple’s specifications. It’s believed that Apple exclusively used OLED screens from Samsung (SSNLF) in the iPhone X.

Apple’s grooming of LG Display as an OLED supplier could be a way for the company to diversify its OLED screen supply chain as well as to ensure that it can secure enough OLED screens for its products to avoid production constraints. Perhaps bringing LG Display on board as an OLED supplier will also hand Apple more bargaining power in price negotiations with Samsung, its current main OLED supplier.

Lower component costs, better profits

Getting component suppliers to lower their prices could lead to higher margins and subsequently better profits for Apple. Apple posted an operating profit of $26.3 billion in 4Q17 (its fiscal 1Q18). Samsung, Microsoft (MSFT), and Google parent Alphabet (GOOGL) posted operating profits of $14.2 billion, $8.7 billion, and $7.7 billion, respectively, in 4Q17.

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