Apple paid Samsung circa $1 billion for missing OLED panel purchase goals in March quarter

Apple reportedly paid Samsung’s display-making arm nearly a billion dollars as a penalty for unfulfilled orders of pricey OLED panels for iPhones in the second quarter of 2020.

Samsung punishes Apple

According to analysts at Display Supply Chain Consultants, Apple paid Samsung Display a whopping $950 million in the second quarter of 2020 for not meeting OLED panel purchase targets.That’s based on Samsung’s own operating profit estimate which includes a one-time gain related to its display business.

“Last week, reported that Samsung Display is believed to have received KRW 900 billion from Apple for purchasing fewer OLED smartphone panels than required, but DSCC sources suggest that the payment is closer to US$950 million,” said the display experts.

Like many technology companies, Apple too saw its iPhone demand and sales shrink considerably during the March 2020 quarter due to the coronavirus epidemic, which is why it couldn’t fulfill its previously agreed-upon purchase order volume for Samsung-built OLEDs.

We heard this before

Apple typically prepays components that go into its products in order to not only secure more favorable deals from suppliers, but also steady supply of critical components. At the same time, these purchase commitments allow a supplier to better allocate its resources and capital toward meeting production goals established between it and its client.

These multi-year agreements include stipulations concerning purchase order guarantees with a special focus on penalties over unfulfilled orders. That’s not the first time Apple has been punished financially for missing its previously-established component purchase targets.

In 2019, Apple paid Samsung an estimated $638 million for, you guessed right, unfilled orders of iPhone OLED panels due to disappointing sales in China during the 2018 holiday quarter.

Your take

Did this report come as a surprise to you? And in your mind, is there anything that Apple’s management could have done to avoid such high compensation fees over missing orders?

Let us know what you think down below in the comments.