This Smartphone Component Maker is Looking Good
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The success of a smartphone is not the phone maker’s success alone. It is also the success of its component providers as well as operating system provider, as each of them plays a major role in deciding the fate of the device. These component makers are often left unnoticed, but play an essential part behind the scene. Every year the Cupertino company not only delights hordes of its fans with the release of the newer redesigned version of its iPhone, but it adds to the profits of its component makers as well.
This year as Apple’s (NASDAQ: AAPL) iPhone 5 makes it big, its display component provider LG Display (NYSE: LPL) will also benefit hugely. Stock prices of Apple are expected to surge once the company announces its newest tech wonder on September 12 and experts are of the opinion that the company’s market capitalization could hit the $1 trillion mark from the current market capitalization of $621 billion. The success of the world’s most valuable technology company will also in turn benefit other players in its value chain.
LG's association with Apple
The world’s second largest LCD producer, LG Display, is a key supplier of flat screens to Apple for its iPhones and iPads and now it is expected to supply the flexible OLED displays to the iPhone maker. Mr. Han, the Chief Executive of the Korean company, officially announced that the company has started the mass production of a revamped and thinner display with improved image quality. The iPhone maker has already secured a patent early this month and thus will be the first one to incorporate this in-cell technology and get an advantage over other comparable smartphones.
Apple is preparing to unveil the new iPhone with 30 percent bigger panels than its earlier version in response to Samsung’s latest 4.8 inch super AMOLED screen Galaxy S III smartphone. The in-cell technology is the latest development in this space and Apple is going to put this technology in its latest iPhone to make its screen slimmer than before. The in-cell technology helps in integrating the touch sensors straightaway in the display and does not require another touch screen layer. This enables the display to be slimmer, which releases space for other components such as a bigger battery. Also, this so called in-cell technology claims to improve the lifespan of the smartphones by 60 percent compared to the present ones.
When compared to the AMOLED display, this display will not only be sharper, crispier and brighter but it will also use 70 percent less battery. These in-cell screens are complicated and thus more difficult to make and so a shortage of these screens due to production complications could disrupt the flow of iPhone 5 into the market. However, LG’s management feels they have experienced all the complexities there could have been and now expect a smooth supply of the panels. Other than this Korean company, there are two more Japanese makers, Sharp Corp. and Japan Display Inc. who are also expected to supply panels using the in-cell technology for the upcoming iPhone.
The much needed boost
Things haven’t been very smooth for the display maker lately and the company reported a net loss of $99 million in its recently ended quarter, though revenue had increased by as much as 14%. The main reason behind the red bottom line was the $175 million that it had to pay to settle a US price-fixing lawsuit. However, the management is pretty optimistic about the future of the company and also commented that it has returned to a profit zone already.
LG’s association with Apple is surely going to further improve the situation. Just like Microsoft’s (NASDAQ: MSFT) Windows Phone 8’s success is expected to have an impact on Nokia (NYSE: NOK) and thus pull the Finnish phone maker out of trouble; even iPhone’s success will help push up the top line of the display maker. Analysts are very hopeful about Nokia’s revival with the new Windows platform and this signifies the power of being in an ecosystem where each player is benefited from the success of the end product.
The success of the latest iPhone will surely have a roll over effect on LG Display’s performance also, and once the device is a super hit and experiences huge demand, even LG will face increased demand for its product and, with time, when LG attains economies of scale, its margins will improve. The FBR Capital analyst Craig Berger estimates that Apple could sell as many as 250 million units of iPhone 5 and such a huge figure can significantly contribute towards LG’s revenue numbers and give it the much needed boost. So, LG must be as excited as the customers and is surely looking forward to the September 12 event. The iPhone 5 launch could turn out to be one of the biggest events in Apple’s history as the demand for the device skyrockets.
Parting thoughts – Do not part with LG
Apple is getting set to combat its South Korean counterpart Samsung. In the process, the company’s component suppliers including LG are preparing to be part of the success story with uninterrupted supply of the new technology display. Han expects the flat panel industry to remain sluggish in the second half of the fiscal year given the global economic slump. However, if the iPhone happens to be as huge a hit as expected, it could mean big business for the flat-screen maker. Analysts and industry experts have good expectations from LG Display and the stock is likely to gain value even if LG’s predicted sales turn partially true. All this makes me pretty bullish on this smartphone component maker. What about you?
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