Apple paying almost $1 billion penalty to Samsung because of the iPhone

Samsung’s hold over the mobile OLED market allows it to demand top dollar from its customers. It can also contractually obligate customers to purchase a certain quantity of panels. If they don’t meet the minimum order quantity, they have to pay Samsung a penalty.

Apple sources the majority of its OLED panels for the iPhone from Samsung Display. It’s required to meet the minimum order quantity or else pay a penalty. According to reports, Apple is now looking at a $1 billion penalty payment to Samsung Display.

Apple has previously paid Samsung Display a penalty as well

This will not be the first time that Apple has to pay a penalty to Samsung Display for buying fewer OLED panels than previously agreed. Apple paid nearly $684 million to Samsung in Q2 2019 because it didn’t meet the minimum order quantity.

Recent reports in Korean media have suggested that Samsung Display might receive another penalty payment from Apple. A local media outlet had estimated that the penalty would be around $745 million. It’s now suggested that the actual amount is going to be much closer to $1 billion.

Sources revealed to the analysis firm Display Supply Chain Consultants that Apple’s penalty payment will be around $950 million in Q2 2020 because it bought fewer OLED panels than it was required to. Samsung recently posted its earnings guidance for the second quarter of 2020. This penalty payment from Apple is now expected to turn what may have been an operating loss for the display division into an operating profit.

Apple is not immune to the changing market dynamics. People are now holding on to their flagship devices for longer. The outlook for 2020 isn’t rosy either as the pandemic erodes customers’ purchasing power. So while it may have expected to sell more iPhones, and would have agreed to a certain quantity with Samsung Display to ensure dedicated production capacity for its OLED panels, market conditions have backed it into a corner and now it has no option but to pay almost $1 billion as a penalty.