Apple may have paid Samsung Display in the region of $950 million, analysts believe, a hefty penalty paid out for not buying enough OLED panels to meet a contracted minimum amount.
As with many firms in the iPhone supply chain, Apple has agreements to make a minimum purchase of specific goods or services, typically to achieve a specific price per unit that both companies are happy to work with. In cases of lower-than-expected demand, changes in orders could mean Apple misses purchase targets for components, which in turn leads to financial penalties.
Last week, Samsung shared its earnings guidance for Q2 2020, and it showed a one-time gain for Samsung Display, a Samsung Group firm that makes display panels. While Samsung did not disclose why it received a one-time gain, it is being reported that it was actually a payment from Apple for missing its purchase targets and buying fewer than expected OLED panels. Last week, South Korean tech publication TheElec had reported this possibility.
Apple pays Samsung Display $950 million
It was reported that the one-time payment from Apple added to the operating profit, but a figure wasn’t given for the value. Initial reports put Apple at making a payment in the region of KRW 900 billion ($749.7 million), caused from purchasing too few OLED panels than contracted.
According to sources of DSCC, Apple’s payment was at a far higher level, believed to be closer to $950 million. In effect, the Apple payment is thought to have turned what would have been an operating loss for Samsung’s display business into an operating profit.
There is no explanation for the shortfall, and while it is likely due to a combination of factors, the most likely culprit would be COVID-19, with the global pandemic affecting the vast majority of Apple’s supply chain, as well as demand for its products. In June, Gartner claimed shipments for the iPhone slumped in the first quarter by 8.2% year-on-year.
This is not the first time Apple has paid Samsung for missing purchasing targets. In 2019, Samsung was thought to have received an estimated $683 million from Apple for similar reasons.