Apple Inc. Supplier Reportedly Confirms Massive Change Coming to iPhone 8

By Markets Fool.com

For quite a while now, it's been rumored that Apple (NASDAQ: AAPL) will transition at least one of the iPhone models that it's expected to launch in the fall of 2017 away from liquid crystal displays, or LCDs, toward organic light emitting diode, or OLED, displays.

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Image source: Apple.

Thanks to a new report from generally reliable Japanese publication Nikkei Asian Review, it would appear that this extremely credible rumor has now become fact.

Sharp's president speaks

Nikkei reports that the president of display manufacturer Sharp (NASDAQOTH: SHCAY), which has long supplied display panels to Apple in support of several product lines, said at a university commencement ceremony that "the iPhone has been evolving and now it is switching from LTPS [low-temperature poly silicon] to OLED panels."

This is almost certainly firsthand information rather than a rehashing of various rumors and news reports, since this statement comes from a top executive of a major Apple supplier that is itself owned by Hon-Hai Precision Industry, commonly known as Foxconn, a key manufacturing partner to Apple.

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Piecing the puzzle together

Previously, Nikkei reported that Apple is planning three new iPhone models for 2017 -- 4.7-inch, 5-inch, and 5.5-inch versions. The 5.5-inch model, per an even earlier report, would sport a curved OLED display, while the other models are expected to stick with LCDs.

What this suggests, at least to this Fool, is that the 5-inch model will take the place of the current 5.5-inch model in terms of pricing, while the new, OLED-equipped 5.5-inch versions will sit above the other two models. Since Nikkei referred to this OLED-equipped 5.5-inch model, as a "premium" model, this hypothesis checks out.

OLED-based smartphone displays are generally believed to be more expensive to manufacture than their LCD counterparts, and a curved OLED display is likely to be more expensive still. With that in mind, it's only natural to assume that Apple would want to charge more for phones using the more advanced displays, lest Apple's gross profit margins suffer.

Apple's iPhone average selling prices could move up next cycle

Apple's iPhone revenue is a function of both iPhone average selling prices and its unit shipments. The iDevice maker is already widely expected to enjoy a unit shipment tailwind with the iPhone 8, as the new devices will offer a more radically redesigned casing than the iPhone 7 delivered.

Beyond the potential of the new iPhone 8 devices to drive unit growth, the introduction of a "premium" 5.5-inch model with a curved OLED display at even higher price points could entice customers to buy an even richer mix of iPhones.

Indeed, even if we assume that this premium 5.5-inch variant wouldn't move the needle with respect to the number of iPhones that Apple sold -- which is probably a pessimistic assumption to make -- a mix shift from products sold at the old 5.5-inch price point, presumably what the 5-inch models will be priced at, to the new "premium" price point would probably lead to a bump in overall iPhone average selling prices.

Higher average selling prices, especially if they are significantly higher generation over generation, could be a key way that Apple accelerates revenue growth from whatever it sees during the iPhone 7 cycle -- assuming, of course, the iPhone 7-cycle yields iPhone revenue growth.

Accelerated iPhone revenue growth would almost certainly have a positive impact on the company's overall financial results and, ultimately, its stock price.

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.