Need to Take Preemptive Move
As Apple is taking movement to raise the self-sufficiency rate of components, South Korean component industry is getting “yellow light.” A number of South Korean parts, such as semiconductors, displays and camera modules, are used in the iPhone 8 to be released in the second half of this year and the domestic industry is enjoying the increased demands from Apple. However, industry watchers point out that it needs to take a preemptive move because the situation can change from the iPhone 9.
According to foreign media reports, including Taiwan’s Taipei Times, on April 19, Apple will begin mass production of micro-LED displays at the Taoyuan plant in Taiwan from the end of this year and use them on its new smartwatch, Apple Watch 3. A micro-LED display, a next-generation display following an organic light-emitting diode (OLED), has a strong potential to be thinner and lighter because it measures only 5 to 10 micrometers. Apple acquired LuxVue, a U.S.-based micro-LED display developer, in 2014 and has been developing the micro-LED technology and preparing for mass production since then.
Once Apple uses micro-LED displays on the Apple Watch 3, LG Display, which has exclusively supplied OLEDs to Apple’s smartwatches, will be hit hard. Industry sources said that domestic sales of OLED panels will decrease by more than 230 billion won (US$201.35 million) when Apple uses its panels on Apple Watches.
The damage is relatively not that serious due to a small quantity of Apple Watches. However, the problem becomes bigger when Apple decides to use micro-LED displays on its smartphones as well. Apple will use an OLED panel on the iPhone 8 to be launched in the second half of this year after testing the panel on the Apple Watch. Considering such precedent, Apple is highly likely to use a micro-LED display on its smartphones after testing the panel on the Apple Watch. In this case, not only Samsung Display, which supplies OLEDs to the iPhone 8, but also LG Display, which is a potential supplier, will be affected. Their combined losses are estimated at 1.2 trillion won (US$1.05 billion) a year. In particular, Apple is likely to use OLED panels produced by China’s BOE on the iPhone 9 to hit the market next year and China Star is also pushing ahead with deals with Apple. Accordingly, the South Korean OLED industry can be caught in the middle.
Samsung Electronics’ and SK Hynix’s supplies of DRAM and NAND flash memory chips to Apple’s iPhones are also under threat. Apple has joined hands with Foxconn and Sharp to acquire Toshiba’s memory business unit. As it offered an unbelievably high price of 30 trillion won (US$26.27 billion) for the unit, Apple has become a potential buyer. Apple plans to establish a stable NAND flash supply chain and strengthen the price competitiveness by taking over Toshiba. Previously, Bloomberg reported that Apple is developing its own power management chips, which have been supplied from Dialog Semiconductor, and has 80 engineers in the unit in order to use them on its iPhone to be released in 2019. In addition, Apple announced on the 3rd that it will develop its own graphics processing unit (GPU) and no longer use the graphics chips of Imagination Technologies two years later. South Korean semiconductor producers can also be in a similar situation.
With the movement of Apple, some express concerns that LG Innotek, which supplies dual camera modules to the iPhone 8, can’t be at ease. LG Innotek’s poor performance last year was largely due to the decrease in camera module sales as sales of iPhones dropped. Apple accounts for 70 percent of the company’s sales of camera modules.
Industry watchers said that Apple has been continuously making an effort to develop its own parts and diversify suppliers. Currently, sales of South Korean component producers from Apple are estimated at over 3 trillion won (US$2.63 billion) a year, but its prosperity from Apple is highly likely to end in two to three years. Notably, China is quickly chasing South Korea in the semiconductor and display sectors.