Weak Link

The iPhone Supply Chain Bites Back at Apple

The company is at the mercy of bitter rival Samsung for a key component.
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Apple is responsible for the health or mortal sickness of the cottage industry of companies that make parts for iPhones or assemble them. It turns out Apple can can also be hurt by the interconnected supply chain.

There is evidence of a little Apple Inc. trap in my Bloomberg News colleagues' article about expectations for the next iPhone models. On tap starting this fall will be a shift from two new versions of the iPhone to three. The two expected in Apple's typical September launch window will be updated versions of the iPhone 7 and its larger-screen sibling, the iPhone 7 Plus.

The big deal for this year -- the 10th anniversary of the iPhone -- is a drastically different new phone with a more vibrant type of screen and extra real estate thanks to slimmer frames around the edges. Wall Street has already grown excited that this reimagined iPhone will set off a rush of people splurging for a cool new iPhone with a big ticket price.

Apple Ascent

Apple's market value has recovered from a 2016 low point as investors anticipate an iPhone sales surge from new models expected this year

Source: Bloomberg

Oh, but wait. Literally.  

The cool new iPhone may not be on sale in September because of hiccups in obtaining enough key components, Bloomberg News reported Tuesday. The most visible is a different type of screen -- known as organic light-emitting diode, or OLED, display -- that allows for a thinner, sharper-looking screens without hogging too much battery life. It gives Apple the technology it needs to make a phone that is essentially all screen. 

Apple, at least initially, will be depending solely on the leading maker of OLED displays, Samsung Display Co. You know who already has a new smartphone with the same type of screen? That would be Samsung Electronics Ltd.

Yep. Samsung is one of Apple's most important suppliers and one of its most bitter rivals. Much has been written about the peril of suppliers relying on Apple for their livelihood. Well, there's also a risk to Apple from depending on its suppliers.

Friends and Enemies

Apple and Samsung compete head-to-head in high-end smartphones. Samsung also is an important supplier of parts for Apple devices.

Source: Bloomberg Intelligence and IDC

I'm not saying Samsung is doing this deliberately, but the smartphone-making part of Samsung apparently has a sufficient supply of OLED screens. Those parts are already rolling off factory assembly lines as the screens for Samsung's new S8 line of smartphones that compete with the iPhone. (My Gadfly colleague Tim Culpan wrote about Apple's risk in relying on Samsung for important components, including OLED screens.)

The enemy-and-friend relationship between Apple and Samsung has been evident for years. Apple worked hard to wean itself off Samsung computer chips for its iPhones and iPads. Apple sued Samsung for copying key elements of the iPhone even as Apple continued to buy parts from Samsung. 

If the OLED iPhone model goes on sale in October or November, it won't be a disaster for Apple. The company is no stranger to muddling through shortages of important iPhone components, and Apple CEO Tim Cook is a wizard of supply-chain management.

But the experience is a salient reminder that in the smartphone industry, no company is an island. Not even Apple. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Shira Ovide in New York at sovide@bloomberg.net

    To contact the editor responsible for this story:
    Daniel Niemi at dniemi1@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal.