Apple supply chain is about to take a big hit! In the midst of its ongoing legal battle with Samsung, The Korea Times reports that Samsung has decided to end its contract renewal with Apple to supply liquid crystal display (LCD) panels for use in its growing range of devices. That means, come next year, Samsung will gradually cut down the display panel shipments to Apple, with a complete cessation some time next year. Likely, there will be no Samsung display panels used on the iPad, iPod, iPhone, and Macs.

Samsung racks up a huge revenue stream from Apple and terminating the contract with ‘One Infinite Loop’ would consequently inflict a sizeable multi-million dollar dent in the company’s revenue and could inflict a serious blow on Apple’s supply chain. But multiple sources foresee Samsung Electronics’ handset division and Amazon to increase display panel orders used in tablets in coming months – a substitute for possible losses arising after terminating contract with Apple. The report cites an unnamed Samsung source claiming that the company is no longer able to supply screens to Apple at a high discount:

“We are unable to supply our flat-screens to Apple with huge price discounts. Samsung has already cut our portion of shipments to Apple and next year we will stop shipping displays,” said a senior Samsung source, asking not to be named, Monday.

The report quotes research firm DisplaySearch saying that over 15 million Samsung Display were shipped to Apple during the first six months of this year, followed by LG Display shipping around 12.5 million LCD’s and Japan’s Sharp with 2.8 million. Apple has, however, shifted part production of its upcoming iPad Mini display screen from Samsung to LG Display, added an anonymous source. Currently, Apple has been working hard to secure supplies from other manufacturers to decrease its reliance on Samsung.

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Many analysts believe that the primary reason for ending contract could be due to the low margins from supplying Apple. The LCD display used in the new iPad (iPad 3), with a resolution of 2048×1536 mm packs 3.14 million pixels priced at $.00003 per pixel. However, the one for the iPad 2 was priced at $.000063 per pixel. Another reason could be the result of courtroom dispute with Apple. Recently a jury awarded Apple $1.05 billion USD in damages in a patent infringement dispute against Samsung. The South Korean company has since appealed the U.S. verdict.

The question is whether LG and Sharp can increase supply enough to compensate? Will Samsung put at risk its Apple supply contract which is worth billions of dollars. Experts, however, believe that the symbiotic business relationship between the two is too important for either to put at risk. What do you think?

Source: The Korea Times

[UPDATE on October 22, 2012 6:20 PM PDT]: According to CNET, the report published by The Korea Times is “100 percent false,” and that Samsung has requested the publication to revise its story. The Samsung’s spokesman said that “Samsung Display has never tried to cut the supply for LCD panels to Apple.”

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