The COVID-19 pandemic empties the pockets of some and stuffs the pockets of those who know how to include a profitable scenario even in an unforeseen situation. For the second consecutive year, Apple pays huge sums to Samsung, as penalties for non-compliance with contractual obligations.
We could say that the COVID-19 pandemic can easily enter the chapter “situations of force majeure” that allow the denunciation of certain contractual obligations. The practice is common, for example, when booking a holiday at a hotel, and a natural disaster impossible to anticipate and predict (eg devastating earthquake) prevents the honor of the reservation placed. Not in the contract signed between Samsung and Apple.
Samsung had a profitable year, thanks to Apple
Following the collapse of sales in the smartphone market, Apple was left with many phones in stock and unable to meet the previously estimated production volume, so much of the orders for OLED screens contracted from the supplier Samsung were no longer honored. However, the South Koreans also provided for such a scenario, providing for substantial amounts to be paid as a penalty, in the event that Apple does not cover the production capacity reserved for Samsung Display factories.
Although the amount paid to Samsung is not public, its value could be found through alternative channels. Estimated at about $ 950 million, the amount paid by Apple managed to turn a negative operating balance into a positive one for Samsung. It is remarkable that, according to the same source, Apple would have paid a similar penalty last year, also because iPhone sales did not rise to the forecast volume.
But this time, production in Apple’s partner factories was effectively blocked for several weeks, with orders for OLED screens dropping out of even the most pessimistic expectations.
But the bad news doesn’t stop there, with the resurgence of COVID-19 infections threatening to keep retail stores in many parts of the world closed. At the same time, the global economic recession is seriously biting consumer spending, with excesses such as the purchase of the new iPhone 12 disappearing from the list of priorities of many Apple fans.
Even if Apple manages to avoid paying other penalties for orders for unfulfilled components, it is unlikely that the company’s revenues will return to growth in the near future.