A new report from Display Supply Chain Consultants just surfaced where it stated that Apple has to pay a whopping 950 million USD to Samsung as a penalty. The reason behind is not ordering enough OLED display from Samsung as per an agreement between these two tech giants. Also, this is not the first, but the second instance when Apple paid the penalty to Samsung this year.
In its second quarterly guidance release, Samsung mentioned of a “one-time gain” in their display manufacturing business. Although they have shown this “gain” as a part of Samsung’s operating profit in the second quarter period this year, they didn’t mention the exact amount. According to a report released by TheElec last month, Apple paid 745 million USD to Samsung. However, DSCC’s report quoted an unnamed source, and according to their news, the amount is around 950 million USD.
In the DSCC report, it further explains that unless Samsung received the amount from Apple, the operating profit which they have shown would not have been possible.
In a nutshell, Apple’s penalty saved Samsung from registering an operating loss in the second quarter. For Samsung’s display business, its revenue guidance expected 7% down the year-on-year basis. But it turns out that their operating profit guidance was expecting 23% up, which is indeed a much higher forecast by Samsung’s analysts, and Apple’s penalty to Samsung has a significant role in it.
If the readers find this case familiar, that’s because something identical happened in the second quarter of last year, too. At that time, Apple had to pay the penalty for not purchasing Samsung’s OLED screen according to the agreed volume. If readers can remember, we, in our report released during that time, indicated that Apple most possibly didn’t pay any cash to Samsung to settle that penalty debt. Instead, they made that up with additional OLED display order to the extent where profit and penalty become equal. We have no definite source that can confirm whether Apple settled its debt to Samsung this year in a similar way, too, or not.
For those who are wondering why Apple pays the penalty to Samsung for not ordering a prefixed volume – it’s due to their unique business model. Apple enters into agreements with most of its OEM suppliers where they promise to make a minimum yearly purchase, in order to get the parts at a lower price point than its competitors, most likely. Hence, in case Apple doesn’t order that minimum volume, the contract comes into play and enforces a penalty that Apple is bound to pay to their supplier. Due to recent coronavirus pandemic, the market demand for Apple’s elite devices, and also their supply chain system (which is mostly in China, the primary epicenter of the Covid-19 virus), both took a hard hit, and that can explain why the iPhone maker had to order lesser display panels from Samsung than they initially estimated.
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