The company they run, Universal Display, is valued at US$5.4 billion (NZ$7.3b), almost double a year ago -- a rally fueled 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 AG 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 lineup 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 have told Bloomberg News. 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 & Co analyst. The Milpitas, California-based supplier expects to deliver US$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 US$5 million, according to Henderson.
"Lumentum has been working on this stuff for at least a decade," Henderson said. He expects the 3-D laser market to be worth as much as US$2 billion by 2020. Lumentum shares are up 65 per cent over the past year.
A Lumentum spokesman 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. These components were primarily used in laser-guided missile systems, but when smartphone-makers considered them for face-recognition systems, Viavi designed a smaller version.
It expects US$35 million to US$45 million in 3-D sensor-related revenue in fiscal 2018. Viavi stock is up 38 per cent in the past year.
Other sensor companies stand to benefit too. Austria-based AMS recognized the potential of optical sensors in 2011 when it acquired Texas Advanced Optoelectronic Solutions Inc. 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 US$600 million 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 per cent of its revenue from Apple, according to Bloomberg supply chain analysis. Analysts expect further orders from the Cupertino, California-based company to help sales to almost double to more than 1 billion euros ($1.2 billion) this year.
"They now have the whole package," said Guenther Hollfelder, a Baader Bank analyst. "Even in the short term, the 3-D sensors business will rise significantly because of the relationship with Apple."
Before the sensor acquisition spree began in 2011, AMS stock had languished around 10 Swiss francs ($10.26) 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 Plc 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 wireless charging.
The next iPhone is instead likely to include inductive charging similar to the Apple Watch, where the charging unit rests against the device rather than juicing it up through the air.
In 2016, San Jose, California-based Energous Corp. said it was developing wireless charging with a "key strategic partner" that analysts and investors understood to mean Apple. The stock doubled that year, but it has fallen in 2017 partly due to delays in getting Federal Communications Commission approval for the equipment, said Ilya Grozovsky, a National Securities analyst.
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, Grozovsky said. "It's more likely to be in a year or two." The FCC approved an Energous system that transmits energy over short distances in May and it is still seeking approval for longer ranges.
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 R&D arm has worked on OLED technology with more vivid colors and lower energy consumption. It then licenses 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. The company's second arm sells the phosphorescent materials, manufactured in a partnership with PPG Industries used to make OLED panels.
When Universal Display went public in 1996, Rosenblatt, Abramson and founder Sherwin Seligsohn expected the technology to be widely adopted within five years.
"We realized 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 US$500 million in R&D costs accrued over 20 years.
