Can Apple corner the display market?February 1, 2011: 10:31 AM ET
According to iSuppli, that's the purpose of a $3.9 billion investment revealed last month
When COO Tim Cook mentioned during Apple's (AAPL) Q1 2011 earning call that the company was going to spend $3.9 billion over the next two years for unspecified component pre-payments, most analysts assumed he was talking about touch screen displays for the iPhone, iPad and iPod touch.
On Tuesday iSuppli -- now part of IHS -- issued a report that makes it explicit: Apple, according to IHS's Vinita Jakhanwal, is trying to corner the market for two key technologies used in its so-called "retina" displays: advanced in-plane switching (IPS) and low-temperature polysilicon (LTPS).
Based on what companies own or have licensed the key intellectual property behind these technologies, Jakhanwal believes he has identified the three suppliers with which Apple has signed agreements: LG Display (LGL), Sharp Corp. and Toshiba Mobile Display.
This is a big deal because Apple hasn't just made pre-payments for displays, it's actually helping build the factories that will manufacture them, ensuring first crack at everything they produce.
"In the era of the iPad and iPhone, the user interface—particularly the display and touch screen—has become the most critical competitive differentiator for tablets and smart phones," said Jakhanwal in a press release. "With sales of smart phones booming, and a flood of new entrants into the tablet market this year, competition among original equipment manufacturers (OEMs) for available supplies of high-end small and medium displays has reached a fever pitch, straining availability of critical types of displays.
Enter Apple, with what iSuppli calls its "massive cash reserves."
According to Jakhanwal, the only available technology that can match LPS/LTPS is the active matrix organic light-emitting diode (AMOLED) display used in many Google (GOOG) Android devices. But at present LG and Samsung are the only two suppliers, and Samsung is using most of them in its own products.
"With Apple trying to invest in assuring IPS supply, and Samsung Electronics having preferential access to small- and medium-sized AMOLED supply, the rest of the smart phone makers are caught between the two giants," Jakhanwal said. "This has left other OEMs to resort to other technologies when it comes to advanced displays, giving Apple and Samsung a huge edge in product differentiation in a highly competitive market."
Apple made a similar investment in Flash memory in 2005 and it worked out pretty well. As Cook put it during the earnings call: "we think that was an absolutely fantastic use of Apple's cash."
[Follow Philip Elmer-DeWitt on Twitter @philiped]