Apple Inc. (NASDAQ:AAPL) Could Face Supply Constraints On OLED Displays

The Apple Inc. (NASDAQ:AAPL) plan to ship an iPhone model with an OLED display could face supply constraints due to the limited number of firms making OLED-manufacturing equipment. One Japanese firm, Canon Inc (ADR) (NYSE:CAJ) Cannon Tokki has a near-monopoly hold on the market but currently only has an annual production capacity that is too low for Apple’s demand.

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The future of display

Getting OLED displays on at least one of its iPhone models scheduled for release next year is especially important for Apple. This is because the smartphone has gone on for several generations now without any game-changing feature with only incremental changes being rolled out. An OLED display would also help Apple achieve its rumored ambition of producing a phone with a full display on the front. Such a display would also allow for a thinner phone, longer battery life, enhanced image quality, and contrast. And with OLED screens being capable of being made from flexible plastic, the possibilities are endless with regards to the shapes the displays can take.

“OLEDs aren’t just for flat areas, but can be used on edges, so smartphone makers will challenge themselves by building displays with new shapes. These qualities in OLED will give it an advantage,” said Teruhisa Tsugami, the Chief Executive Officer of Cannon Tokki.

Order backlog

Besides the limited number of OLED equipment Cannon Tokki can produce in a year, there is also a huge backlog of orders that the Japanese unit of Cannon Inc has to fill. Some of Cannon Tokki’s customers include Sharp Corporation (ADR) (OTCMKTS:SHCAY),LG Display Co Ltd. (ADR)(NYSE:LPL), and Samsung Electronics Co Ltd (ADR) (LON:BC94).

Samsung is expected to be the sole supplier of the OLED screens for the iPhone but may not be able to make enough because of its low yield rates. About 200 million iPhones are sold on average every year. Other potential suppliers of the OLED screens include Sharp, LG and Japan Display Inc (TYO:6740). But out of the three, only LG might be in a position to ship the screens in time as the other two are planning on commencing production in 2018.

In Wednesday’s trading, shares of Apple rose by less than a percentage point to close the day at $117.06.

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