Even as the tech media focus on the supposed lack of innovation in the iPhone 7, Apple (NASDAQ:AAPL) investors should focus on Apple's transformation from mere gadget maker to a true developer of breakthrough technologies. This requires patience, as breakthroughs such as micro-LEDs are not made in a day, or even a few years.
Source: Apple Insider
Last week, Digitimes published some speculation regarding Apple's plans to use a new technology called micro-LED in the Apple Watch in 2017. The article has subsequently dropped behind a paywall, but you can read a good summary in Apple Insider. The rumor is a good example of the difficulty the business tech media has understanding advanced technology, and the nature of technology development at Apple.
Micro-LEDs could very well constitute a revolution in display technology that would supersede LCD and OLED for mobile applications. The main advantages that micro-LED displays have would be in brightness and power efficiency.
Micro-LED displays are composed of arrays of blue gallium nitride ((GaN)) LEDs. By themselves, the displays are monochromatic (shades of blue). Current research examples are also tiny. For instance, here's a sample of a micro-LED display fabricated at the Hong Kong University of Science and Technology (HKUST):
Along with the display output for various black and white inputs:
The work at HKUST is fairly representative of the state of the art as it is known from published work. There remain two fundamental problems to be solved in the technology: scaling up the size of the display to be useful for applications such as wearables, and creating displays capable of full RGB color.
We don't really know how far along Apple's research in micro-LED is. Apple bought LuxVue Technology in 2014 which specialized in micro-LEDs. LuxVue had 13 granted patents and 8 patent applications pertaining mainly to fabricating micro-LED arrays, which Apple gained as part of the acquisition. Another patent application for micro-LEDs just surfaced, in which one of the credited inventors was previously CEO of LuxVue, so we can reasonably assume that some part of the LuxVue team is still working on micro-LEDs for Apple.
Bloomberg also reported that Apple had taken over Qualcomm's (NASDAQ:QCOM) facility in Taiwan that was used for development of its defunct Mirasol display technology. It's thought that Apple is pursuing micro-LED research at the facility.
Most of LuxVue's patents pertain to production and size scaling of the displays. That leaves the problem of producing color displays. There are a number of ways of solving this problem. The simplest would be to overlay the micro-LED array with an array of color phosphors. The phosphors would be pixellated, and provide color conversion of the blue LED light to red and green pixels. These arrays would probably need to be combined with color filters. The level of difficulty of fabricating the color conversion array is probably about the same as the difficulty of fabricating the very fine filter arrays for Apple's LCD retina displays.
There may also be a better way to do the color conversion. A startup called VerLASE claims to have a color screen conversion technology ideal for micro-LED arrays that doesn't use the phosphor approach as illustrated below:
Regardless of the approach, there has to be some color conversion layer, but this probably is the easier problem to solve. In assessing the level of maturity of micro-LED display technology, I believe that it's mainly the problem of size scaling that will pace the introduction of the technology in the marketplace.
But that introduction is almost certain to come. It's estimated that micro-LEDs will consume only a tenth of the power of a typical LCD display, making the technology far more efficient than either LCDs or OLEDs. Even if the color conversion layer reduces that efficiency by a factor of two, micro-LEDs will still be roughly a factor of 4-5 times more efficient than competing technologies. That's a highly disruptive advantage, where the screen has become the single largest power consuming element for smartphones.
The problem of size scaling appears to be very significant, however. Probably Apple has put the effort on a Five-Year Plan. This would be typical for an R&D effort with technology at this level of maturity. This means that Apple would not expect the technology to be ready for productization until about 2019-2020. I believe that the expectations that it would be ready in time for an Apple Watch in 2017 are unrealistic.
Out of Sync
The fact that the tech media publish unrealistic expectations about micro-LEDs shows how out of sync they are with Apple's evolution as a technology company. The prevailing view of Apple is clearly demonstrated in the Wall Street Journal's recent article on iPhone 7. The article predicts minimal changes (in appearance) for iPhone 7, while completely ignoring Apple's deep innovation in processor technology.
WSJ merely repeats the longstanding stereotype of Apple as a technology opportunist. Apple's "innovations" mostly amount to early adoption of technologies developed by other companies. The lack of innovation in this year's iPhone is supposedly due to lack of availability of innovations from suppliers, since Apple is incapable of innovation on its own.
This is complete rubbish, but it continues to be a view that one finds even in Apple's fan sites. Apple's developments in systems on chip (SOCs) that power its iOS devices, and its investment in long-term micro-LED research demonstrate that Apple is no longer willing to be dependent on suppliers for innovation.
The fact that Apple is undertaking longer term research projects does say that there could be some lag when these projects come to fruition. That's part and parcel to this kind of research. Breakthroughs won't necessarily occur on an annual basis. This year's iPhone 7 may represent one of those years where the changes are not obvious.
However, if one of the rumors about iPhone 7 comes true, that it will be 1-millimeter thinner, that would actually constitute a significant change. That would be a thickness reduction of 14%, and probably about the same in volume. In a previous article concerning iPhone, I've discussed innovations in the SOC that could significantly reduce the volume of the internal electronics. The rumors of a thinner iPhone 7 seem to confirm this. Although the size change has been made to seem trivial by the media, producing a volume change of that magnitude is not at all trivial.
Apple has come a long way from the time it co-opted the innovations at Xerox Palo Alto Research Center (PARC) into what would become the Mac. Apple's investment in basic technologies such as processors and displays can confer huge competitive advantages that last for years.
I consider Apple's ability to deploy its cash into R&D efforts such as micro-LEDs to be one of its greatest competitive advantages. This is an advantage that is completely unrivaled by any other technology company. Although Apple doesn't advertise all the "bets" it's making, the full extent and depth of these is beyond anything its competitors can afford. For that reason, among others, I remain long Apple and recommend it as a buy for investors with a 3-5 year investment horizon.
Disclosure: I am/we are long AAPL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.