iPhone struggles unravel Japan Display ambitions

Reuters, TOKYO

Sat, Mar 23, 2019 - Page 10

When Japan Display Inc broke ground on a new factory in central Japan in 2015, the future looked bright for one of the world’s top vendors of LCD panels.

The plant would strengthen the company’s position as the primary screen supplier for Apple Inc as sales of the iPhone 6 soared, and the US smartphone juggernaut said it would front most of the US$1.5 billion in costs, with Japan Display paying it back with a percentage of screen sales, two company sources said.

Four years later, Apple’s shifting fortunes have brought Japan Display to its knees and threaten to end Japan’s long run as a leader in display technology.

A slowdown in iPhone sales, combined with a proliferation of new iPhone models — many of which use newer organic light-emitting displays (OLED) — have left Japan Display’s new factory running at half capacity.

However, it still owes Apple a majority of the construction cost, one of the company sources said, declining to give the exact amount.

Desperate for capital, Japan Display is looking to an investor group, led by China Silkroad Investment Capital, for a bailout, two sources with direct knowledge of the matter said.

The deal would give the Chinese group a near-majority stake in exchange for an investment of US$500 million to US$700 million, the sources said.

The group plans to build an OLED panel plant in China using Japan Display’s technology, the two sources said.

The company’s woes show how weak iPhone sales and a broader slowdown in the smartphone business are causing pain across the Asian electronics supply chain.

“In retrospect, the new plant was unnecessary,” one of the sources with direct knowledge of the bailout talks said. “But the decision wasn’t wrong back then. Japan Display started to pick up steam thanks to Apple at the time, and Apple wanted the new plant.”

Japan Display was not alone in betting on robust growth in iPhone sales, which looked especially attractive because of Apple’s now-abandoned strategy of offering few variations in each product cycle.

“We were all thrilled to see lifetime sales of a single iPhone model reaching 100 million units,” a source at another Apple parts supplier said.

“Supplying components for just one model in massive volume is extremely cost-efficient,” he said. “At the same time, we exposed ourselves to huge volatility risks.”

Japan Display has built relationships with other smartphone vendors, including Chinese powerhouses Huawei Technologies Co (華為), Xiaomi Corp (小米) and Oppo Mobile Telecommunications Corp (歐珀).

However, it is also losing their orders as sales growth softens and the Chinese players switch to domestic panel makers such as BOE Technology Group Co (京東方) and Tianma Microelectronics Co (天馬微電子), which have sharply improved the quality of their screens.

Japan Display supplied almost one-third of Huawei’s smartphone screens in 2015, but its share had plunged to 4 percent by the third quarter last year as the Chinese company turned to BOE and Tianma, researcher IHS Markit said.

Sources at Japan Display and other Apple suppliers declined to be identified as they are not authorized to talk to the media. Suppliers rarely speak about business with Apple on the record because of strict non-disclosure agreements.