Why Make Displays Cheaper for Everyone Else?
The Verge is reporting that Samsung has Apple (AAPL) under a barrel when it comes to pricing on their new iPhone OLED displays. Which strikes me as accurate because no one else can deliver on the scale that Apple needs and Samsung knows it.
But if Samsung is truly milking their position as Apple’s sole supplier they could end up killing the goose that lays the golden eggs. The more that Samsung charges, the more attractive that investment in an alternate supply looks to Apple.
When Apple financial analysts construct a case to invest in another display company or even purchase one, they juxtapose that investment with the current state. The higher the prices that Samsung charges, the shorter the payback period to Apple.
Further, Apple finds itself in a rather unique position when it comes to sourcing components. For most companies, it would be much more cost efficient to purchase components from an outside party that specializes in that component. For Apple, I wonder how true this is.
Normally, an outside party is able to spread their R&D and fixed costs to many customers thereby giving lower prices to all. But Apple has the largest single smartphone platform in the world. Even though the Android OS has a much larger market share percentage, it is split between many different brands. No single brand, even Samsung, has the concentrated volume that Apple does.
So when Apple throws an enormous amount of volume to a supplier like Samsung, they are getting a smaller benefit than all the other customers who may be using Samsung. Apple finds itself in the position of shouldering much of the fixed costs for everyone else. Why continue doing that? Samsung could even be shifting it’s overhead costs to Apple and in the process allowing Samsung Mobile to get lower component prices.
If Apple were to invest in an alternate supply of OLED Screens it would have a double benefit to Apple. First, they’d get a better price than what Samsung is giving them. And second, Samsung phones would probably become less profitable due to shouldering more of the fixed overhead costs and R&D. It would be like scoring a touchdown that also deducted points from your opponent.
Apple sells more high-end phones than anyone else in the world. At this point, there is no reason for them not to invest in their own display company or for any other component that has a competitive advantage. They simply make those components more accessible to their competitors. It’s the same logic that drove them to create their own CPUs and now GPUs.
There would be a much more direct financial case with investing in a vertical supply stack than there would ever be in investing in an Apple car. Apple financial analysts could fill spreadsheets galore with financial modeling that shows where Apple would get their money back and then some. But investing in an Apple car? Not so much. Not that there wouldn’t be a return at all. But it’s highly doubtful that the magnitude of the return would even be in the same ballpark. It’s more a question of opportunity cost and priorities.
Now available in iBooks —> The Tesla Bubble
When Apple financial analysts construct a case to invest in another display company or even purchase one, they juxtapose that investment with the current state. The higher the prices that Samsung charges, the shorter the payback period to Apple.
Further, Apple finds itself in a rather unique position when it comes to sourcing components. For most companies, it would be much more cost efficient to purchase components from an outside party that specializes in that component. For Apple, I wonder how true this is.
Normally, an outside party is able to spread their R&D and fixed costs to many customers thereby giving lower prices to all. But Apple has the largest single smartphone platform in the world. Even though the Android OS has a much larger market share percentage, it is split between many different brands. No single brand, even Samsung, has the concentrated volume that Apple does.
So when Apple throws an enormous amount of volume to a supplier like Samsung, they are getting a smaller benefit than all the other customers who may be using Samsung. Apple finds itself in the position of shouldering much of the fixed costs for everyone else. Why continue doing that? Samsung could even be shifting it’s overhead costs to Apple and in the process allowing Samsung Mobile to get lower component prices.
If Apple were to invest in an alternate supply of OLED Screens it would have a double benefit to Apple. First, they’d get a better price than what Samsung is giving them. And second, Samsung phones would probably become less profitable due to shouldering more of the fixed overhead costs and R&D. It would be like scoring a touchdown that also deducted points from your opponent.
Apple sells more high-end phones than anyone else in the world. At this point, there is no reason for them not to invest in their own display company or for any other component that has a competitive advantage. They simply make those components more accessible to their competitors. It’s the same logic that drove them to create their own CPUs and now GPUs.
There would be a much more direct financial case with investing in a vertical supply stack than there would ever be in investing in an Apple car. Apple financial analysts could fill spreadsheets galore with financial modeling that shows where Apple would get their money back and then some. But investing in an Apple car? Not so much. Not that there wouldn’t be a return at all. But it’s highly doubtful that the magnitude of the return would even be in the same ballpark. It’s more a question of opportunity cost and priorities.
Now available in iBooks —> The Tesla Bubble
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