The Economic Laws driving Apple’s new OLED iPhone

Over the last few weeks, I have had to field numerous calls from various people in the media asking me to respond to the rumors suggesting that Apple’s new iPhone with an OLED screen could cost well over $1000 dollars.

While a $1000.00 plus cost of an iPhone may be shocking to many, the reason behind it is basic economics of supply and demand. And given the questions I have gotten from many of the media who have asked me about this, it seems that they either did not take economics in school or are just not seeing the big picture around this important economic principle.

We have known for some time that OLED screens are in high demand and short supply. That means that the cost of an OLED screen, if Apple can get them, will be priced at the high-end today until supply can increase, which in turn will eventually bring OLED screen prices down. The suppliers I have talked to in Asia say that actual cost of a 5.7” OLED screen today is somewhere between $230 and $280 depending on quantity and availability.

I saw my first OLED screen over 18 years ago when I was in Japan and visited a display factory in Osaka. It was a very early prototype and they explained the technology behind it and, more importantly, the challenges of making them in the future.

Even then they knew that besides being able to make them in large quantities, they would have yield problems for many years and costs would be very high. Once they were able to start making them in even small quantities, the first yields were something like only 1 or 2 in 10 were usable. Even though the manufacturing process has matured, they still have yield problems and as predicted, the prices are still high.

At last Winters CES show in Las Vegas, much of the industry got a really good look at the incredible quality and resolution that comes with an OLED screen. Many TV Vendors were showing off their early models of large screen OLED TV’s with prices tags over $10K depending on the size of the screen. One key thing about OLED screens is that the blacks are blacker and the whites are whiter and every pixel is illuminated so that the color depth and concentration are amazing. But when I talked these vendors they told me not to expect them to make them in any large quantities yet as yields are still a problem and prices for these screens are still astronomical.

This is why if Apple, as rumors suggest, bring out what perhaps would be called a 10th-anniversary edition iPhone in the fall and that model would use an OLED screen, its initial price would be so high. The irony of this, of course, is that Apple will sell every OLED phone they can make at any price it comes out at and there will be a serious backlog for it for at least 6-9 months if not more.

Apple’s move to OLED in an iPhone will start a stampede from other smartphone vendors, at least at the high end, to follow suit and the demand and scarcity of OLED screens in this size range will skyrocket and the laws of supply and demand will only be more exacerbated.

But Apple’s move to OLED will have one key positive effect almost immediately. The various maker’s of OLED screens will be incentivized to invest more aggressively in their manufacturing lines as they will see demand for small screen increasing as well as making their larger OLED screens for TVs.

And the Foxconn/Sharp display factory in the works will most likely be focused on making OLED screens too when it comes online later this decade.

When this happens the laws of supply and demand kick in again and by nature of these laws, prices for OLED screen will eventually come down.

I am convinced that Apple has every intention to move all of their iPhone models to have OLED screens over the next 2-3 years as supply increases and they can do it so that the prices of these OLED models are more in line with the prices of iPhones today. But thanks to basic economics principles in play, any OLED smartphone introduced today will be very high priced until supply increased and can bring the prices down to more normal level across the board.

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Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

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