Sloppy report depicts Apple as struggling with LG as an alternative to Samsung OLEDs on ne...

Posted:
in iPhone edited April 2018
A new report claiming to understand Apple's supply chain has asserted that LG screens might be facing development issues as a second source for OLED displays on upcoming iPhones, based on Apple's higher than normal scrutiny of LG prototypes--and then strangely claims this issue is driving iPhone X prices so high that "some" are not buying it.

iPhone X
iPhone X shipped with an OLED display from a single source


The Wall Street Journal report, with a byline of Yoko Kubota in Beijing and Takashi Mochizuki in Tokyo, and additional credit for Tripp Mickle in San Francisco (who recently--bizarrely--claimed iPhone X was selling poorly based on a fundamental lack of understanding of the phone industry and Apple's supply chain) described Apple's efforts to develop a second source for OLED screens (apart from its current sole supplier Samsung) as both a "struggle" and the reason why iPhone X carries a premium price.

A report mixing reality with fantasy

LG's inability to match Samsung in OLED competency is well known. Last fall, Google shipped two Pixel 2 models, one from HTC with a Samsung display and the other from LG with an LG display. Both had serious OLED screen issues, but the LG "XL" model was shockingly bad. Google shipped it anyway. Sales of both models were terrible. Nobody in the media seemed to care, and if anything, made excuses for Google--which shipped a faulty, inferior product with a high price tag.

But now that Apple is investigating LG as a potential OLED supplier, LG's inability to master OLED displays on the same level as Samsung has been recast as a big issue for iPhones--despite the fact that Apple already shipped iPhone X to great success using just one OLED supplier to ensure high-quality output.

According to the report, LG was supposedly tasked with building displays for about 20 percent of future iPhone models, with Samsung being relied upon for the other 80 percent. In reality, Apple constantly makes changes to its suppliers based on cost, capacity and competence, and in tandem with changes in demand across different regions globally.

Rumors of a supply cut with one supplier can not be accurately interpreted, as a history of false predictions by channel check analysts have demonstrated across the last decade.

Samsung's component expense blown out of proportion

The report also stated that Apple's single source for OLED screens would logically give Samsung higher pricing power, another obvious fact that has played out in other areas, including memory and other components where Samsung holds pricing power due to a lack of strong competition.

However, it also went out on a limb in stating that Samsung's control of the OLED market was "one reason for the iPhone X's steep $999 price tag, analysts said," before adding original conjecture that, "the price turned off some customers, causing demand to fall short of expectations and forcing Apple to cut orders for parts."


Pitty the troubles of iPhone X in trying to find buyers


That conclusion is based entirely on the media narrative that claims Apple expected to build 40 million more iPhone X units in the March quarter than it did, a wildly implausible idea that Japan's Nikkei and the Wall Street Journal kept passing back and forth as the reason why iPhone X was selling "so poorly," even as the new model gobbled up over a third of all profits as the best selling smartphone model.

Both sites (and everyone copying their lede) also claimed that iPhone X's high price was hurting sales, despite the fact that demand for the new model (and the also-expensive iPhone 8) dramatically pushed up Apple's iPhone Average Selling Price. If a statically important number of buyers were against paying any premium for the new models, the ASP would obviously not have changed. That's just how math works. Claiming the opposite is just a lie.

BOM component estimates are nearly worthless

A reliable, competitive second supplier for iPhone-quality OLED panels would certainly help Apple bargain for better component prices. But the report takes external parts estimates as fact, despite a history of warnings from Apple executives that those third party figures are just ballpark guesswork, and are generally far lower than the actual component costs involved.

The Wall Street Journal report claimed that iPhone X's OLED display accounted for "about $97 out of $376 in total estimated cost per device," based on a parts breakdown report. That display cost would indeed be significantly higher than estimated costs of previous LCD screens, which Apple sources from multiple suppliers.

Display estimates for iPhone 7 and 8 models have suggested an LCD component cost closer to $50. Yet the screens' cost ratio to the entire iPhone BOM was only a few percentage points different. And even a nearly $50 difference component cost for the display would only result in a retail price difference of about twice that much, or around $100 of the final price. Suggesting that Samsung's OLED is the primary reason for iPhone X to be priced at $999 is ridiculous

iPhone X is priced $300 higher than the base iPhone 8. Suggesting that Samsung's OLED is the primary reason for iPhone X to be priced at $999 is ridiculous.

Apple's premium iPhone X model is more expensive for a number of larger reasons, including that fact that Apple spent billions to develop entirely unique new technology for the device, including its TrueDepth camera and all of the software required to support and market its Face ID features (including significantly rethinking the navigation behaviors of iOS).

Third-party component price estimates suggested that all of the development expenses related to Face ID are somehow covered by a "camera module" that costs $16.70, as if TrueDepth was available off the shelf and Apple just pushed a shopping cart through a Walmart and put 50 million into its basket (and then refused to buy another 40 million, because it ended up being so expensive that "some" ended up not buying it). This sort of reporting is not journalism. It's farcical nonsense.

Apple, OLED and micro-LED

Sourcing OLED displays from a limited number of manufacturers is among the least complex operational issues Apple faces in introducing iPhone X and other new phone models. Apple only has one supplier (TSMC) building its A-series chips. It only has two makers building cellular modems (Qualcomm and Intel, with Intel struggling like LG to keep up with the market leader) and it uses a variety of other components that are unique to a specific manufacturer.

Apple has single-sourced the base of its ARM and GPU intellectual property from the first iPhone. Starting in 2010 it began developing custom ARM designs. This year Apple released its own GPU design, which ended up being slightly better than the Imagination Technology GPU IP it had been relying upon. Apple is also reportedly working on internal analog and perhaps modem designs to similarly strip itself from dependence upon single outside suppliers. Those efforts are all vastly more complex than evaluating a second supplier of a nearly commodity component.

In the area of display technology, Apple's current OLED issues appear to be a short-term issue for the company. In the long term, the company is working on micro-LED, a different technology that promises to deliver important advantages to OLED. That development is a matter of concern to both Samsung and LG. The Wall Street Journal didn't mention that.
«13

Comments

  • Reply 1 of 41
    nunzynunzy Posts: 662member
    DED should become an analyst.  He is consistently right and they are always wrong.
    tmayracerhomie3magman1979watto_cobrajony0
  • Reply 2 of 41
    nunzy said:
    DED should become an analyst.  He is consistently right and they are always wrong.
    He wouldn't last long -- "Sir, this data is useless." "I don't care, Dilger. We paid for it, we're going to publish it, and I'm paying you to analyze it in a way that will drive traffic to our site." End of employment.
    tmayracerhomie3lkruppStrangeDaysRayz2016nunzymagman1979watto_cobrajony0
  • Reply 3 of 41
    If you want to say the FaceID is causing supplier/price/QC difficulties, I’ll consider it.

    But, OLED?  I really doubt it.  Doing due diligence on LG seems like common sense and just part of the process. 
  • Reply 4 of 41
    "Display estimates for iPhone 7 and 8 models have suggested an LCD component cost closer to $50. Yet the screens' cost ratio to the entire iPhone BOM was only a few percentage points different. And even a nearly $50 difference component cost for the display would only result in a retail price difference of about twice that much, or around $100 of the final price. " I am sure DED has done the math and I am confident that his statement is correct. But for my own education, can someone help me understand how that conclusion is derived?
  • Reply 5 of 41
    SoliSoli Posts: 8,818member
    nunzy said:
    DED should become an analyst.  He is consistently right and they are always wrong.
    He wouldn't last long -- "Sir, this data is useless." "I don't care, Dilger. We paid for it, we're going to publish it, and I'm paying you to analyze it in a way that will drive traffic to our site." End of employment.
    LOL That seems accurate, unfortunately.
    mike1nunzymagman1979watto_cobrajony0
  • Reply 6 of 41
    SoliSoli Posts: 8,818member
    If you want to say the FaceID is causing supplier/price/QC difficulties, I’ll consider it.

    But, OLED?  I really doubt it.  Doing due diligence on LG seems like common sense and just part of the process. 
    I have no idea where Apple has the biggest supplier issues, but I can say with certainly that Apple's OLED displays are harder to source than OLED displays used on the devices.
    edited April 2018
  • Reply 7 of 41
    Renaissance NerdRenaissance Nerd Posts: 3unconfirmed, member
    While this analysis is very good, and is one of the reasons I never read or watch news, rather I only read and watch opinions.  Puncturing the cookie-cutter Mad-Lib template-driven 'news' media, whatever topic they pretend to cover, is a public service.  I used to think that at least the quotes were correct in news items, but then I was interviewed myself for a small piece in the Arizona Republic, and Lo!  They misquoted me twice.  I started paying close attention after that, and there are many, many people who have been misquoted so often that the mind boggles, to the point that they never talk to the press without at least one reporter accusingly bringing up a old misquote that has been denied many times.

    The press coverage of Apple is not unique, but par for the course.  Of course they're biased, because the template they're following makes them biased.  Whoever is the big dog has to be unfavorably compared with the underdog, always.  They're puffing up failures by other companies because of their belief in helping the little guy, even when the little guy is a multi-billion dollar corporation who can't compete without (as they fondly imagine) their helping hand.  

    Apple is anathema to journalism school templates because of one thing Jobs insisted upon that has slowly been abandoned by most other corporations: the pursuit of excellence.  Microsoft's motto has always been 'barely functional is more than good enough for us,' while Apple has usually tried for excellence in function and form both. Barely adequate is perfect for the bureaucratic monstrosities that most corporations have become, and Apple makes everybody feel bad by not settling for half- or quarter-arsed.  

    It goes to show that even a socially liberal company can run afoul of the socially liberal media by disagreeing on one point, but that one point is what turned Apple from a shaky, failing, crumbling enterprise in the mid-nineties to one of the all-time greats, in less than a decade.  Excellence matters--even when the pursuit of it results in failures.  
    StrangeDaysmagman1979watto_cobra
  • Reply 8 of 41
    StrangeDaysStrangeDays Posts: 7,591member
    nunzy said:
    DED should become an analyst.  He is consistently right and they are always wrong.
    Yes and when you're an analyst people accept whatever you say, so it would mean an end to all the butthurters who complain about his pieces. 
    magman1979watto_cobra
  • Reply 9 of 41
    StrangeDaysStrangeDays Posts: 7,591member

    While this analysis is very good, and is one of the reasons I never read or watch news, rather I only read and watch opinions.  Puncturing the cookie-cutter Mad-Lib template-driven 'news' media, whatever topic they pretend to cover, is a public service.  I used to think that at least the quotes were correct in news items, but then I was interviewed myself for a small piece in the Arizona Republic, and Lo!  They misquoted me twice.  I started paying close attention after that, and there are many, many people who have been misquoted so often that the mind boggles, to the point that they never talk to the press without at least one reporter accusingly bringing up a old misquote that has been denied many times.

    The press coverage of Apple is not unique, but par for the course.  Of course they're biased, because the template they're following makes them biased.  Whoever is the big dog has to be unfavorably compared with the underdog, always.  They're puffing up failures by other companies because of their belief in helping the little guy, even when the little guy is a multi-billion dollar corporation who can't compete without (as they fondly imagine) their helping hand.  

    Apple is anathema to journalism school templates because of one thing Jobs insisted upon that has slowly been abandoned by most other corporations: the pursuit of excellence.  Microsoft's motto has always been 'barely functional is more than good enough for us,' while Apple has usually tried for excellence in function and form both. Barely adequate is perfect for the bureaucratic monstrosities that most corporations have become, and Apple makes everybody feel bad by not settling for half- or quarter-arsed.  

    It goes to show that even a socially liberal company can run afoul of the socially liberal media by disagreeing on one point, but that one point is what turned Apple from a shaky, failing, crumbling enterprise in the mid-nineties to one of the all-time greats, in less than a decade.  Excellence matters--even when the pursuit of it results in failures.  
    As a media student in university I unfortunately agree on the state of journalism and templating. The 2016 US elections were proof of that, I couldn't stand to listen to even my usual favorites because of the way they stuffed each of the candidates into the templates. 

    Anyway, I've also been interviewed by the local paper and dismayed at how badly their bungled the quotes. Ugh.

    Nice first post, BTW. Leagues above the recent influx of one-post wonders.
    edited April 2018 magman19792old4funwatto_cobra
  • Reply 10 of 41
    CarliCarli Posts: 1unconfirmed, member
    Good article. The aspect missing, though is that Apple consistently charges ridiculous premiums for its phones. Recognizing that they have right to do that as long as customers pay for it, is fair point, but it is still worth noting that this is nearly predatory behavior. Eventually, companies do get punished for that by consumers. Good author that wants to sound independent (i.e., avoids being labeled as fanboi) should point that out. It makes article more credible.
  • Reply 11 of 41
    klock379 said:
    "Display estimates for iPhone 7 and 8 models have suggested an LCD component cost closer to $50. Yet the screens' cost ratio to the entire iPhone BOM was only a few percentage points different. And even a nearly $50 difference component cost for the display would only result in a retail price difference of about twice that much, or around $100 of the final price. " I am sure DED has done the math and I am confident that his statement is correct. But for my own education, can someone help me understand how that conclusion is derived?

    As a very general ballpark rule, the component cost of a CE device generally has to be roughly doubled to arrive at a price where it can be sold at a reasonable profit.

    That's why low-end phones generally can't afford to add an expensive processor or camera that "only costs" a certain amount that by itself doesn't seem very expensive. You have to double that component cost to achieve a sellable price.
    StrangeDaysklock379watto_cobra
  • Reply 12 of 41
    Carli said:
    Good article. The aspect missing, though is that Apple consistently charges ridiculous premiums for its phones. Recognizing that they have right to do that as long as customers pay for it, is fair point, but it is still worth noting that this is nearly predatory behavior. Eventually, companies do get punished for that by consumers. Good author that wants to sound independent (i.e., avoids being labeled as fanboi) should point that out. It makes article more credible.

    It's not really true that Apple charges "ridiculous premiums." What's actually the case is that most commodity PC/CE makers choose to operate with extremely thin margins because they have nothing to differentiate themselves from even cheaper competitors. Google and Microsoft fans have made "Apple margins" a talking point, but its actually backwards. 

    Apple's overall margins are around 40%. Most retail has a 50% markup on merchandise (such as clothing) to sell in a store. Software is commonly sold at a tremendously high margin because there is little cost in making digital copies.

    Back in the late 90s when everyone was pretending to be righteously indignant about Apple's ~40% margins on Macs, Microsoft was earning 90% margins. Google similarly charges whatever it wants without really making anything that involves real costs, so it was making incredible gross margins before its costs began rising.

    If you look at overall net margins, Google and Microsoft have historically had higher margins than Apple, meaning they created less compared to the money they took in. Calling Apple predatory because it works harder and demands less money from customers is not really accurate on any level. 

    Also, Samsung, Microsoft and Google have tried to copy Apple by selling premium hardware at similar prices, albeit cutting corners on quality. None sell premium hardware at similar volumes to Apple, and despite all their trying to (as you say) charge "predatory" prices, they've simply failed to pull it off out of incompetence rather than some righteous generosity. 

    The difference with Apple isn't that it is charging higher prices, but that its products command a higher price because hundreds of millions of people agree that Apple's products are better and worth the premium. 
    tmaymagman1979muthuk_vanalingamStrangeDaysLukeCagewatto_cobra
  • Reply 13 of 41
    StrangeDaysStrangeDays Posts: 7,591member
    Carli said:
    Good article. The aspect missing, though is that Apple consistently charges ridiculous premiums for its phones. Recognizing that they have right to do that as long as customers pay for it, is fair point, but it is still worth noting that this is nearly predatory behavior. Eventually, companies do get punished for that by consumers. Good author that wants to sound independent (i.e., avoids being labeled as fanboi) should point that out. It makes article more credible.
    Nope, that's just, like, your opinion, man. 

    Apple has an entire range iPhones for sale -- nobody is forced to buy the top-tier model anymore than you have to buy the top-tier model car from a brand. Come in at what's comfortable for you and where you think you'll derive value. Why is this hard to grasp?

    Thankfully, the buying public understands this (and many things Apple) better than the techies and pundits. There's a reason Apple is both a premium brand and the most financially successfully public corp in human history. It's working. But they'll get punished any day, right?
    LukeCagewatto_cobra
  • Reply 14 of 41
    StrangeDaysStrangeDays Posts: 7,591member

    Carli said:
    Good article. The aspect missing, though is that Apple consistently charges ridiculous premiums for its phones. Recognizing that they have right to do that as long as customers pay for it, is fair point, but it is still worth noting that this is nearly predatory behavior. Eventually, companies do get punished for that by consumers. Good author that wants to sound independent (i.e., avoids being labeled as fanboi) should point that out. It makes article more credible.
    Apple's overall margins are around 40%. Most retail has a 50% markup on merchandise (such as clothing) to sell in a store. Software is commonly sold at a tremendously high margin because there is little cost in making digital copies.
    Often more. I've done business with big box stores and have friends in furniture, and they expect a 100% markup -- buy at X, sell for double-X. This is called keystone pricing:

    https://fitsmallbusiness.com/product-pricing/

    The term Keystone Pricing means a standard 100% markup, or doubling a product’s wholesale cost, to get the selling price.

    Keystone Pricing Math: Cost x 2 = Selling Price

    Keystone pricing is the retail pricing rule-of-thumb and also extends to retail ecommerce. 


    ...Americans pay a 100% on tons of stuff from name brand retailers, every single day. People aren't freaking out or calling it "predatory pricing". But...Apple!

    watto_cobra
  • Reply 15 of 41
    Raging HereticRaging Heretic Posts: 1unconfirmed, member
    Nice chart. All it shows is that the iPhone X is the highest selling iPhone. LOL There are 10 devices listed on that list, of them, 8 are iPhones. The other two are Samsungs. Does DED know that there are a ton of different manufacturers that produce Android devices? Apparently not. Amazon, LG, Huawei, HTC, Google, Motorola, Essential, Sony, Lenovo... all of these phones run Android. This is a poorly written and grossly biased native advertising piece for Apple. Apple has like no market share.
  • Reply 16 of 41
    k2kwk2kw Posts: 1,732member
    Nice chart. All it shows is that the iPhone X is the highest selling iPhone. LOL There are 10 devices listed on that list, of them, 8 are iPhones. The other two are Samsungs. Does DED know that there are a ton of different manufacturers that produce Android devices? Apparently not. Amazon, LG, Huawei, HTC, Google, Motorola, Essential, Sony, Lenovo... all of these phones run Android. This is a poorly written and grossly biased native advertising piece for Apple. Apple has like no market share.
    Last I heard Amazon phones were torn apart 3 years ago to make the echo.   
    watto_cobra
  • Reply 17 of 41
    Nice chart. All it shows is that the iPhone X is the highest selling iPhone. LOL There are 10 devices listed on that list, of them, 8 are iPhones. The other two are Samsungs. Does DED know that there are a ton of different manufacturers that produce Android devices? Apparently not. Amazon, LG, Huawei, HTC, Google, Motorola, Essential, Sony, Lenovo... all of these phones run Android. This is a poorly written and grossly biased native advertising piece for Apple. Apple has like no market share.
    Read the caption on that chart and think about it for a little bit. It’s okay to edit your comment or just delete it if you realize how stupid it is. 
    StrangeDaysMacsplosionwatto_cobra
  • Reply 18 of 41
    StrangeDaysStrangeDays Posts: 7,591member
    Nice chart. All it shows is that the iPhone X is the highest selling iPhone. LOL There are 10 devices listed on that list, of them, 8 are iPhones. The other two are Samsungs. Does DED know that there are a ton of different manufacturers that produce Android devices? Apparently not. Amazon, LG, Huawei, HTC, Google, Motorola, Essential, Sony, Lenovo... all of these phones run Android. This is a poorly written and grossly biased native advertising piece for Apple. Apple has like no market share.
    Hilariously, you don't even realize why what you said is absurd. I know you're a troll, but the chart depicts profit-share. That it's dominated by iPhones is, in fact, the entire reason that it's notable.

    Apple has a minority market share, yet they eat up the majority of the profits -- all your knockoff vendors make jack squat. Sorry, bub, but profit is the air corporations breath, not market share. Market share is what fandroids chant because their offshore heroes aren't make any actual money. Flavors of the week.

    Pretty poor showing for your first post.
    edited April 2018 watto_cobra
  • Reply 19 of 41
    avon b7avon b7 Posts: 3,785member

    Carli said:
    Good article. The aspect missing, though is that Apple consistently charges ridiculous premiums for its phones. Recognizing that they have right to do that as long as customers pay for it, is fair point, but it is still worth noting that this is nearly predatory behavior. Eventually, companies do get punished for that by consumers. Good author that wants to sound independent (i.e., avoids being labeled as fanboi) should point that out. It makes article more credible.
    Apple's overall margins are around 40%. Most retail has a 50% markup on merchandise (such as clothing) to sell in a store. Software is commonly sold at a tremendously high margin because there is little cost in making digital copies.
    Often more. I've done business with big box stores and have friends in furniture, and they expect a 100% markup -- buy at X, sell for double-X. This is called keystone pricing:

    https://fitsmallbusiness.com/product-pricing/

    The term Keystone Pricing means a standard 100% markup, or doubling a product’s wholesale cost, to get the selling price.

    Keystone Pricing Math: Cost x 2 = Selling Price

    Keystone pricing is the retail pricing rule-of-thumb and also extends to retail ecommerce. 


    ...Americans pay a 100% on tons of stuff from name brand retailers, every single day. People aren't freaking out or calling it "predatory pricing". But...Apple!

    A lot of high markup products are highly volatile, seasonal, or perishable products or products where someone is sitting in the middle with enormous control over distribution.

    You cannot reasonably compare the markup on a T-Shirt or a red pepper with a computer.

    Look at the price of Smints per kilo and you might find you are paying more per kilo than some of the best Iberian ham.


  • Reply 20 of 41
    avon b7avon b7 Posts: 3,785member
    Nice chart. All it shows is that the iPhone X is the highest selling iPhone. LOL There are 10 devices listed on that list, of them, 8 are iPhones. The other two are Samsungs. Does DED know that there are a ton of different manufacturers that produce Android devices? Apparently not. Amazon, LG, Huawei, HTC, Google, Motorola, Essential, Sony, Lenovo... all of these phones run Android. This is a poorly written and grossly biased native advertising piece for Apple. Apple has like no market share.
    Hilariously, you don't even realize why what you said is absurd. I know you're a troll, but the chart depicts profit-share. That it's dominated by iPhones is, in fact, the entire reason that it's notable.

    Apple has a minority market share, yet they eat up the majority of the profits -- all your knockoff vendors make jack squat. Sorry, bub, but profit is the air corporations breath, not market share. Market share is what fandroids chant because their offshore heroes aren't make any actual money. Flavors of the week.

    Pretty poor showing for your first post.
    Is one quarter representative of anything save that quarter?

    Can someone dig out a chart of the same information over the two years prior to that quarter?

    I had heard that Apple was on a downward slide and had hit 60%. Was there any evidence to support that because from over 100% down to 60% seems like quite a slide.

    I'd much rather see the trend (whichever way it pointed) than a cherry-picked Christmas quarter that had a third and most expensive Apple phone ever, pent-up demand and a potential super-cycle attached to it.


Sign In or Register to comment.