The Influence of Korean Manufacturers, Particularly Samsung, on the Price Shift
Apple has forged partnerships with a number of Korean manufacturers to provide the components required for the functionalities of the iPhone 8. One major alteration coming to the phone is the shift to OLED display technology. Historically, Apple has favored IPS LCD technology for its devices, but 2017 will bring about a change.
Apple has enlisted Samsung’s services to supply the OLED screen needed for the iPhone 8. With Samsung dominating 97 percent of the OLED production market for smartphones, they have the necessary resources and manufacturing facilities to meet Apple’s requirements. However, this presents a challenge for Apple.
Apple typically relies on multiple suppliers for specific components. For instance, the LTE chips for iPhones are sourced from both Intel and Qualcomm. Having multiple suppliers enables Apple to negotiate better prices for these components, ultimately leading to improved profit margins per iPhone sold.
Regrettably, Apple only has Samsung as the supplier for the OLED screen. According to renowned analyst Ming-Chi Kuo, Samsung is charging between $120 to $130 per display component, placing Apple in a tough spot.
Given Samsung’s ability to produce and supply these panels in large volumes while maintaining high component quality, Apple must pay a premium for this display.
Apple ideally seeks additional suppliers for better rates on this display component. However, with LG Display and Japan Display being the only two alternatives, Apple is currently reliant on Samsung.
At present, LG Display and Japan Display lack the equipment and capabilities to produce adequate display units for future mobile phones.
These suppliers will likely be incorporated into the production later on, but analysts suggest this might happen around 2019, potentially leading to premium prices for future iPhones as well.
Other components sourced from Korean manufacturers include NAND flash (provided by Samsung and SK Hynix), dual-camera lens modules (LG Innotek), and 10nm FinFET chipsets (TSMC).
All of these collectively contribute to the escalating price of the phone.
Further Aspects Impacting the Cost
Apple is heavily betting on augmented reality with the iPhone 8 launch. The phone is anticipated to feature a 3D sensing module, a component unprecedented in any previous iPhone.
In addition to enabling facial recognition security and depth-sensing, the 3D sensing module will introduce various AR-related features for app developers to leverage.
The 3D sensing module is expected to drive up the iPhone 8’s price. An UBS analyst has suggested that the dual-lens module and 3D sensing technology will compel Apple to raise the price in order to sustain the same profit margins as with the iPhone 7 and 7 Plus.
Analysts anticipate the phone to start from $900, with some rumors hinting at a $1,000 starting price, placing the iPhone 8 outside the pricing competition with the Galaxy Note 8. We believe the $900 estimate is more plausible considering Apple will not bundle any free accessories with the purchase.
Moreover, the iPhone 8 will support wireless charging. However, Apple will sell the accessory separately, and without a headphone jack, customers may have to spend over $1,000 to use various accessories with the phone.
We predict the phone’s base price to be $900, available in 64GB and 256GB storage variants.
In essence, Apple will continue to command a premium for each iPhone 8 sale, yet the financial strain on customers to spend more can be attributed to Korean manufacturers such as Samsung, charging significantly for their components.
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