Apple’s Big Bet on OLED in 2019 Creates Winners and Losers

According to a new report from South Korea’s ET News (via MacRumors), Apple (NASDAQ: AAPL) intends to launch three new iPhones in 2019, and each of those devices will incorporate a display technology known as an organic light emitting diode, or OLED.

For some context, only one of the three iPhones that Apple introduced in the fall of 2017 used OLED technology; the other two used the more traditional display technology known as liquid crystal display, or LCD. Two of the iPhones slated to launch this year are rumored to incorporate OLED displays, with a third, low-cost model utilizing an LCD.

OLED displays are known to offer several benefits compared to LCDs, including superior contrast ratios and faster pixel response times. They’re harder to make, though, and today, only a single supplier — Samsung (NASDAQOTH: SSNLF) Display — is believed to be able to make OLED panels that are up to Apple’s standards. However, it’s a virtual inevitability that other panel makers will eventually step up to meet Apple’s needs.

Apparently, Apple’s confident enough that the rest of the industry will deliver that it’s reportedly planning to go all-in on OLED technology for its 2019 iPhones.

Let’s go over the potential winners and losers from this move.

Apple’s iPhone X uses an OLED display. Image source: Apple.

Many winners

The obvious beneficiaries from Apple going all-in on OLED displays in its 2019 iPhone lineup would be the display makers themselves. Samsung Display would likely see a lower share of Apple’s total OLED orders, but the overall pie stands to be much larger.

LG Display (NYSE: LPL) has been long been rumored to be vying aggressively for Apple’s OLED display business, so it wouldn’t be surprising to see the company benefit from Apple’s shift from LCDs to OLED-based displays. LG Display could end up supplying OLED panels to Apple for this year’s iPhones, but there have been reports that LG Display is struggling to meet Apple’s stringent quality standards. There have also been rumors that Chinese display maker BOE is also vying to supply Apple with OLED displays.

In addition to the panel makers, OLED material maker and intellectual property holder Universal Display (NASDAQ: OLED) should also be set to benefit. Investors seem to agree as shares of the company soared when the ET News report hit the wires.

My Motley Fool colleague and Universal Display stockholder Steve Symington thinks Universal Display shareholders “have every reason to celebrate” this news, and I can’t help but agree.

A few losers

There are several companies that stand to lose from an Apple move to OLED displays across its iPhone lineup. The first would be, in aggregate, Apple’s competition. Apple’s competitors moved to OLED displays before Apple did, and many competitors use OLED displays more broadly across their product portfolios than Apple does.

For now, the competition’s more aggressive use of OLED displays can be a competitive advantage, but I think that advantage will be neutralized by the time Apple’s 2019 iPhones roll out. That could mean greater market share for Apple, which, naturally, would come at the expense of Apple’s competition.

More directly, though, a key loser from this shift would be longtime Apple supplier Japan Display. As Reuters observed, Japan Display is “one of the main suppliers of iPhone liquid crystal display screens” and has “lagged its South Korean rivals in OLED production.”

It’s little wonder that the stock dropped once the report claiming that Apple would transition to OLEDs across the board went live.

Japan Display has already been feeling the heat from Apple’s use of OLEDs in the iPhone X, claiming in a May 15 earnings presentation that it saw a “large decline due to [a] major customer adopting OLED” during its most recent quarter. That “major customer” sounds a lot like Apple, and if I’m right, that pain is likely to get worse as Apple increasingly shifts to OLED displays.

Moreover, even if Japan Display is successful in developing its own OLED manufacturing capabilities, it’s unlikely to enjoy the kind of market share at Apple that it enjoyed when Apple used LCDs for most, if not all, of its lineup.

Things don’t look good for Japan Display, and its failure to be a leader or, frankly, even a fast-follower in OLED display technology may permanently impair its long-term business prospects.

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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