How Apple's iPhone 7 Benefits LG's Camera Module Maker

LG’s camera module maker, LG Innotek, has been struggling in 2016 due to a slowdown in smartphones worldwide. The company suffered an operating loss of 34 billion won ($30 million) in the second quarter, turning to deficit from a year ago. But it’s expected to rebound—thanks to Apple.

One of the major improvements in Apple’s new iPhones is the camera setup. It’s completely redesigned, and upgrades include a wider aperture to take clearer photos in the dark, a 12-megapixel sensor that’s 60% faster, and, most significantly, the iPhone 7 Plus has dual cameras at the back—and LG Innotek is its exclusive module supplier.

A close-up view of the iPhone 7 Plus’ dual cameras. (Photo credit: Josh Edelson/AFP/Getty Images)

Cameras are becoming more important for smartphones, and it is also a profitable component to supply. Companies could invest into making better batteries or speakers, but those are only a fraction of the price of an iPhone, meaning less revenue for those parts suppliers.

According to data from Chipworks and teardown.com, it costs $292 to build an iPhone 7 (128GB model), and speakers take up $11.50 of the cost and batteries contribute just $4. Cameras, meanwhile, cost $26 and are the third most expensive part after the logic board ($74) and screen ($37).

Camera module suppliers can expect more revenue, especially for the dual-camera modules, which Korea Times says are known to generate more than one and a half the profit margins compared with a normal, single-camera module.

“LG Innotek will stand to benefit from the new iPhone introduction, as the firm is the only vendor for the highly profitable dual-camera modules,” Korea Investment & Securities analyst Kevin Lee told the Korea Times. Kiwoom Securities analyst Kim Ji-san said in the same report that the company will enjoy larger profit growth in the fourth quarter this year.

(Photo credit: Ralph Orlowski/Bloomberg)

Users also benefit from a better product. Dual cameras can take double the information of a single camera, and combine the information from the two cameras during processing to produce higher quality images. Consumers care more and more about image quality, not just for photos, but also for videos, says Vishal Tripathi, a research director at Gartner.

“Yahoo, Skype, Snapchat, WhatsApp, Google … everyone is focusing on video chat and camera is becoming very important on a smartphone because, besides that, what else can you offer?” he said. “Bluetooth is done, the battery life is done, the wireless charging is done … and the hardware and RAM is fine. So what’s next?”

Smartphone makers need to constantly innovate and improve their products to make consumers want to replace their smartphones, and camera is one of the distinct features to invest in a device, said Tripathi. “People are looking for the next innovation, and the innovation in smartphone technology is around the camera now,” he said.

LG Innotek is betting big the camera trend will continue. It’s currently building a $550 million-factory in Vietnam, which will supply camera modules to major smartphone makers, including Apple, according to VnExpress. The factory is designed to churn out about 30 million module units per month and is expected to start running in the third quarter next year.

John Kang ,

FORBES STAFF

From Hong Kong, I write business stories about tech companies in Asia.

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