Tapping into the pioneer inventors that create on a shoestring
IT WAS THE late 1990s, and entrepreneurs Steven Abramson and Sidney Rosenblatt were pitching an electronics giant on their new flat-screen technology. It didn’t go well.
The product was unproven, and, given that the start-up had a pittance in the bank, the manufacturer had doubts about its long-term viability.
“You want us to bet the future of our company on your technology?,” the would-be customer said after the presentation. “Steve and I looked at each other and said: ‘He has a point’,” Rosenblatt said in a recent interview. He didn’t identify the manufacturer he was pitching.
Almost 20 years and half a billion dollars in research and development later, the pitch finally paid off. Apple will soon release a new iPhone using the organic light-emitting diode, or Oled, technology that Abramson and Rosenblatt toiled on for so long.
The company they run, Universal Display Corporation, is valued at $5.4 billion (R71bn), almost double a year ago – a rally fuelled by winning the world’s most valuable company as an end customer.
As Apple fights to maintain its technology leadership in smartphones, it’s turning to little-known suppliers that have spent years or even decades developing components in the hope they might one day enjoy widespread adoption. Like Universal Display, other companies including Lumentum Holdings and AMS are also poised to benefit from the next version of Apple’s bestselling device.
The iPhone 8, as analysts tentatively dub it, is the most significant upgrade to Apple’s handset line-up since at least 2014. Smartphones have evolved from communication devices into portable hubs for identity, payments, entertainment and new experiences like augmented reality. That requires major hardware upgrades, forcing Apple to scour the global electronics supply chain for tools and services that often had narrower uses until now.
In addition to the Oled display, the new iPhone will have a front-facing 3-D sensor that uses facial recognition to unlock the screen, people familiar with the plans said. That will provide a boost to a tech niche whose greatest success to date is Microsoft’s Kinect motion-sensing system in the Xbox gaming console. The iPhone market dwarfs that.
Lumentum makes lasers used in 3-D sensors and controls about three-quarters of that market, according to Alex Henderson, a Needham & Company analyst. The Milpitas, California-based supplier expects to deliver $200 million worth of lasers this year, most of which will end up in iPhones. Prior to July, Lumentum’s total cumulative revenue from that market was around $5m, according to Henderson.
“Lumentum has been working
‘You want us to bet the future of our company on your technology?’ the would-be customer said.
on this stuff for at least a decade,” Henderson said. He expects the 3-D laser market to be worth as much as $2bn by 2020. Lumentum shares are up 65 percent over the past year. A Lumentum spokesperson declined to comment.
Viavi Solutions, what was left when JDS Uniphase spun off Lumentum into a separate business, will provide 3-D laser filters for the iPhone, according to a person familiar with the contract.
Other sensor companies stand to benefit too. Austria-based AMS recognised the potential of optical sensors in 2011 when it acquired Texas Advanced Optoelectronic Solutions. That deal gave it components that adapt iPhone screen brightness to ambient light conditions and detect whether the handset is being held against the ear, deactivating the touchscreen.
Apple’s 2013 purchase of Israel’s PrimeSense showed it was serious about 3-D sensor technology. AMS responded by accelerating its push into the space. It spent more than $600m to acquire Heptagon Micro Optics and Princeton Optronics, adding sensors that receive signals from the lasers Lumentum and rivals churn out.
AMS already gets about 20 percent of its revenue from Apple. Analysts expect further orders from the Cupertino, California-based company to help sales to almost double to more than €1 billion (R15.45bn) this year.
Before the sensor acquisition spree began in 2011, AMS stock had languished around 10 Swiss francs (R136.15) for years, with products focusing on industrial and automotive applications. It’s now at 70 francs.
Investment in new manufacturing facilities to meet Apple demand means some suppliers are spending while revenue hasn’t climbed much yet. That poses a risk, should Apple decide in a year or two to ditch the new technologies, opt for alternative suppliers or use in-house systems. Chip designer Imagination Technologies Group learned that lesson the hard way earlier this year, when it revealed it was losing Apple’s business.
One innovation that’s unlikely to have its day just yet is
‘We realised in 1999, when we’d hired five, six or seven technical folks, that it was going to take a lot longer.’
wireless charging.
In 2016, San Jose, California-based Energous Corporation said it was developing wireless charging with a “key strategic partner” that analysts and investors understood to mean Apple.
Apple typically designs and tests features for new iPhones about a year before the devices are sold. That makes it unlikely wireless charging will feature in the next iPhone because the technology wasn’t ready 12 months ago, said Ilya Grozovsky, a National Securities Corporation analyst. “It’s more likely to be in a year or two.” Still, Universal Display’s experience shows patience can sometimes be rewarded. The company says it now gets “a couple of pennies” in revenue for every square inch of Oled sold by its customers.
The Oled specialist has two branches to its business. Since it was founded in 1994, the research and development (R&D) arm has worked on Oled technology with more vivid colours and lower energy consumption.
It then licences the intellectual property from its thousands of patents to display makers such as Samsung Display, which manufactures Oled panels and whose sister company Samsung Electronics already uses the displays in its smartphones.
“Initially, we had materials that lit up for 10 seconds and died,” Rosenblatt said. Now, they last for about 20 years, with little degradation in the screen’s brightness, he added.
When Universal Display went public in 1996, Rosenblatt, Abramson and founder Sherwin Seligsohn expected the technology to be widely adopted within five years.
“We realised in 1999, when we’d hired five, six or seven technical folks, that it was going to take a lot longer,” said Rosenblatt. “We didn’t make a lot of money, didn’t get paid for a lot of it. But we were out there plugging away that Oled was going to be the technology of the future and we never changed our focus.”
In February, the company announced its first dividend after finally generating enough profit to cover the $500m in R&D costs accrued over 20 years.