In exchange for a guaranteed supply of LCD screens until 2013, Apple will prepay USD $500 million to LG later this month.
LG, which is the world’s second-largest maker of flat panel displays behind Samsung, presently supplies Apple with 70 per cent of its LCD panels.
Prices for the parts, which have been falling rapidly during the recent global slowdown, are expected to begin rising again in the near future.
In 2005, Apple made a similar deal with five memory suppliers which ensured the iPhone maker established a competitive edge in the digital media player and cell phone markets.
In that agreement Apple prepaid a total of USD $1.25 billion to secure its supply of NAND flash memory.
This type of strategic deal allows better prices to be obtained for components and can put pressure on competitors’ margins.