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Apple Inc. has signed long-term agreements totaling nearly $4 billion with liquid crystal display (LCD) suppliers to guarantee it receives small and medium-size LCD panels necessary for Apple's iPad and iPhone products.
Apple Chief Operating Officer Tim Cook said the company had executed long-term supply agreements with three vendors. The agreements were expected to involve about $3.9 billion in inventory component prepayments and capital expenditures over two years, according to researcher IHS iSuppli.
IHS iSuppli lists the suppliers as LG Display, Sharp Corp., and Toshiba Mobile Display. The agreements would involve Apple's retina display, used in the iPhone and iPad. The display uses advanced in-plane switching (IPS) and low-temperature polysilicon (LTPS) technology. The technology results in high resolution in small displays by using pixels that are smaller than the human eye can perceive.
"With sales of Smartphones booming, competition among original equipment manufacturers (OEMs) for available supplies of high-end small and medium displays has reached a fever pitch," said Vinita Jakhanwal, director for small and medium displays at IHS.
Display availability is strained. Because of this, "Apple has moved to invest some of its enormous cash reserve in securing the supply of advanced displays," Jakhanwal said.
In 2010 alone, Apple spent about $2 billion on displays for its iPad and iPhone product lines. Its suppliers included LG Display, Samsung Electronics, Sharp and Toshiba Mobile Display.
Apple is taking a strategic approach to sourcing displays. Rather than simply purchasing displays from suppliers, Apple may provide money that LG Display, Sharp, and Toshiba Mobile Display can use to invest in the production of IPS and LTPS LCD panels, according to IHS iSuppli.
The investment guarantees that Apple will get a major share of global output of IPS LCD and LTPS LCD panels, according to Jakhanwal. It also poses a challenge for Apple competitors because IPS LCD production is limited to suppliers that own or have access to the IPS license. In addition, manufacturing yields associated with IPS LCD are still poor, according to IHS iSuppli.
For LTPS LCDs, the capacity base is limited and, with the sudden growth in Smartphone demand, may prove insufficient to meet market demand.
The alternative to IPS wide viewing and power saving features in Smartphones is the active matrix organic light-emitting diode (AMOLED) display, used in many Android operating system-based models. Samsung Mobile Displays and LG Display are currently the only sources for AMOLED panels. As a result, AMOLEDs have gone into a state of critical shortage, said Jakhanwal.
With Apple trying to lock up IPS supply, and Samsung Electronics having preferential access to small and medium-sized AMOLED supply, "the rest of the smart phone makers are caught between the two giants," Jakhanwal said.