Apple's shift to the OLED iPhone is apparently so massive that Morgan Stanley upped its forecast of the displays used on that phone by a whopping 2X this past week. But delays are also baked into the forecast.
Often referred to generically as the "iPhone 8" or "10th Anniversary iPhone," optimism about the supply of OLED displays prompted Morgan Stanley to revise its forecast because of a "higher than expected iPhone 7 Plus mix" and better "supply chain clarity" on OLED display supply to Apple, the investment bank said in a research note to investors this past week.
Back in November, our checks pointed to 50M [million] OLED panel supply to Apple but the range has expanded to 50-100M with production yields at Samsung the key variable.
-- Morgan Stanley
That means basically half of the upcoming iPhone model mix could be OLED. "With an expected (second half 2017) total iPhone production plan of 100-110M, this suggests OLED could be closer to 50% mix, versus our prior conservative assumption of 33%," Morgan Stanley said.
While the forecast is tempered by the realities of a maturing smartphone market and upgrade cycles, the OLED iPhone's new features should allow it to buck the trend. "Our analysis assumes upgrade rates (shipments as a % of two-year old "upgradeable" iPhones) remain at trough levels as the market matures," Morgan Stanley said. "But we see upside potential if the upgrade cycle shortens temporarily on the strength of promised new features, such as more power efficient OLED display, wireless charging, 3D sensors, and a new curved form factor."
iPhone 8 Delays:
Morgan Stanley anticipates delays too, as have other recent reports, which could mean consumers will have to wait for OLED iPhones in 2017.
Recent supply chain data points indicate investor concerns around low yields for new components that could restrict supply of the new high-end form factor during the September and December quarters of this year. However, our model already bakes in supply constraints with [second half 2017] iPhone unit growth of 4% well below the implied 20-30% growth based on current build forecasts. What's more, even in a scenario of extreme supply shortage, strong demand is likely to limit valuation downside and could actually extend most investors' holding periods.
More OLED models coming?
Down the road, it's a given that Apple will roll out more OLED iPhones. But how soon will that happen?
"Our supply side colleagues are seeing lots of preparation by the likes of Foxconn...preparing for a massive ramp of iPhone production," IHS Markit analyst Wayne Lam told me in an email.
That could imply another model with an OLED display, Lam said. "Apple may have a wider product strategy come September. iPhone 7S, iPhone 8 and “one more thing” iPhone X edition – with or without curved displays...Just a thought," Lam said.
