Apple reportedly paid almost $1 billion to Samsung for faltering on order for screens

Apple may have paid $950 million to Samsung for not meeting its goals in terms of the number of OLED screen it had ordered.

The iPhone maker depends on Samsung to procure Organic Light Emitting Diodes screens. Samsung makes over 40 per cent of all OLED screens in the world. With its AMOLED displays, it has a 98 per cent share of screens in the market. Out of the $400 million yearly revenue from screens over $100 million is generated by Samsung alone.

The report, which was published by Display Supply Chain Consultants suggests a one-time payment for falling short in terms of product acquirement.

"One-time gain"

During its Q2 2020 release, Samsung made a reference to a “one-time gain” coming from its screen display enterprise. However, no clear indication of Apple’s involvement or amount was mentioned in this report.

Last month, reports of Samsung receiving over $700 million circulated on social media. But this new revelation pins the approximate amount at $950 million.

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The report also mentioned how this affects the profit for Samsung. “The Apple payment likely turned what otherwise would have been an operating loss for display devices into an operating profit,” it said.

The revenue incurred from screens was down by 7 per cent for Samsung, while its operation profit was up by 23 per cent, much higher than expected.

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Not the first time

This is not the first time Apple has paid a hefty amount to Samsung. In 2019, a similar penalty was enforced by Samsung for not buying enough OLED screens. For perspective - let’s say Apple placed an order for 20 million screens, but due to market fluctuations and demands, was only able to accommodate 15 million screens. The value of the 5 million screens would then have to be paid to Samsung, or made up by procuring even more screens from the company, which is exactly what happened last year.

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Most big companies make deals with screen makers with a guaranteed purchase of a minimum number of screens, which lowers the total cost of buying them. As part of the contract, inability to fulfil this imposes fine on the buyer.

It is likely that this year’s disruption will be attributed to COVID-19, which has caused a global slowdown of selling and buying power. Factories have also remained shut in the face of growing concerns about social distancing to conquer the virus.