Exclusive – Apple iPhone 6 screen snag leaves supply chain scrambling

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TOKYO (Reuters) – Suppliers to Apple Inc (AAPL.O) are scrambling
to get enough screens ready for the new iPhone 6 smartphone
as the need to redesign a key component disrupted panel
production ahead of next month’s expected launch, supply chain
sources said.
It’s unclear whether the hiccup could delay the launch or limit
the number of phones initially available to consumers, the
sources said, as Apple readies larger-screen iPhones for the
year-end shopping season amid market share loss to cheaper
rivals.
But the issue highlights the risks and challenges that suppliers
face to meet Apple’s tough specifications, and comes on the
heels of a separate screen technology problem, since resolved,
in making thinner screens for the larger iPhone 6 model.
Cupertino, California-based Apple has scheduled a media event
for Sept. 9, and many expect it to unveil the new iPhone 6 with
both 4.7 inch (11.94 cm) and 5.5 inch (13.97 cm) screens –
bigger than the 4-inch screen on the iPhone 5s and 5c.
Two supply chain sources said display panel production suffered
a setback after the backlight that helps illuminate the screen had
to be revised, putting screen assembly on hold for part of June
and July. One said Apple, aiming for the thinnest phone possible,
initially wanted to cut back to a single layer of backlight film,
instead of the standard two layers, for the 4.7-inch screen, which
went into mass production ahead of the 5.5-inch version.
But the new configuration was not bright enough and the
backlight was sent back to the drawing board to fit in the extra
layer, costing precious time and temporarily idling some screen
assembly operations, the source said.
Output is now back on track and suppliers are working flat-out to
make up for lost time, the supply chain sources added.
Japan Display Inc , Sharp Corp and South Korea’s LG Display Co
Ltd have been selected to make the iPhone 6 screens, the
sources said.
Representatives for those three suppliers, and for Apple,
declined to comment.
WIDER IMPACT
Apple is known to make tough demands on its parts suppliers for
new iPhones and iPads as it competes to create designs, shapes,
sizes and features to set it apart and command a premium price
in a fiercely competitive gadget market.
This can cause glitches and delays, including screen problems
that crimped supplies at last year’s launch of a high-resolution
version of Apple’s iPad Mini.
It also highlights the danger for suppliers of depending too
heavily on Apple for revenues, creating earnings volatility.
Earlier this month, Japan Display, said to be the lead supplier for
the new iPhone panel, said orders for “a large customer” – which
analysts said was Apple – arrived as expected, but shipments
may be delayed in the July-September quarter.
Japan Display’s reliance on Apple’s cyclical business has spooked
some investors. UBS Securities has forecast that Apple will
contribute more than a third of the Japanese firm’s total revenue
in the year to March 2015. Japan Display’s share price dropped
to a 12-week low of 501 yen after first-quarter earnings on Aug.
7 lagged market expectations.
In Taiwan, home to several Apple suppliers and assemblers,
export orders grew less than expected in July, even as factories
rushed output ahead of new smartphone launches, reflecting the
erratic nature of the business.
“Currently, there’s a small shortage in supply of a specialised
component for our communication devices,” said a spokesman
for Pegatron (4938.TW), which assembles iPhones. “This kind of
problem regularly occurs and the impact on production is
negligible.”
Supply chain sources had previously said challenges with the
new iPhone’s screen in-cell technology, which eliminates one of
the layers in the LCD screen to make it thinner, caused a delay
in the production of the larger 5.5-inch version. One display
industry source said the in-cell issues had now been resolved.
The pressure on Apple for stand-out products has increased as
Samsung Electronics Co and, more recently, a clutch of
aggressive, lower-cost Chinese producers such as Xiaomi Inc
and Lenovo Group Ltd have eroded the U.S. company’s market
dominance.
The iPhone 6 unveiling has been widely anticipated to bolster
momentum for Apple shares, which have risen by a third, to
above $100 each, since the company posted strong first-quarter
earnings in late-April.
(Additional reporting by Michael Gold in TAIPEI, Sophie Knight in
TOKYO and Christina Farr in SAN FRANCISCO; Editing by Edmund
Klamann, Miyoung Kim and Ian Geoghegan)