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Apple is likely to compensate Samsung: supply chain sources



It is likely that Apple will compensate Samsung for orders for iPhone 12 mini-screens that are smaller than contract, say supply chain sources, after the demand for the smallest model in the series was significantly lower than estimated.

It would not be a unique step: It has happened twice before …

Background

Back in 2019, Apple paid Samsung a fine for not ordering the agreed number of iPhone screens from the Korean company. It was originally reported that this would be “at least $ 170 million”, but Samsung’s accounts later revealed that the penalty clause was $ 638.

The penalty goes back to Apple̵

7;s insistence that Samsung Display build a facility to exclusively produce OLED screens for the iPhone. Apple had told Samsung Display that it would need 100 million OLED iPhone screens a year. But a decline in iPhone sales had a driving effect for Samsung Display, which saw operating profit halved in one year and fell from 5.7 trillion won in 2017 to 2.62 trillion won in 2018.

The situation was repeated last year, when it is reported that Apple has paid Samsung close to a billion dollars in compensation to reduce order volumes below contract levels.

Samsung noted in its Q2 guidance release that the operating profit for the second quarter of 2020 included a “non-recurring gain related to the display business”, but it did not include the amount. TheElec reported last month that Samsung received around $ 745 million from Apple, but today’s report from the DSCC does not cite named sources and says that Apple paid “close to $ 950 million.”

Apple will probably compensate Samsung again

The Korea Herald says that the same will be true this year, but without mentioning a specific sum.

Samsung Display’s worldwide small OLED shipments in January fell 9 percent month-on-month to 45 million units, according to market researcher Omdia, who added that the decline is apparently caused by weak sales of Apple’s iPhone 12 mini.

Foreign media have reported that Apple has adjusted the target production of the iPhone 12 series to 75 million units for the first half of this year, which is about 20 percent lower than the previous target, with the iPhone 12 mini responsible for the majority of the cuts.

Samsung Display is the sole supplier of a 5.4-inch panel for the iPhone 12 mini, the smallest model of Apple’s 5G-supporting iPhone 12 series.

Industry observers now predict that Apple will once again have to pay Samsung a hefty penalty for failing to meet the minimum order quantity.

iPhone 12 mini sales were reported to have disappointed Apple, with several reports of production cuts.

However, it seems that lower demand for the iPhone 12 mini has been balanced by greater demand for other models in the series, so it is possible that Apple will be able to avoid penalties this time. Apple does not usually comment on such matters, but payments tend to be identifiable in Samsung’s financial reports, so it is likely that we will find out if this is the case.

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