Mikey Campbell
Apple iPhone supplier Japan Display might lose backing from its top investor, the government-backed fund Innovation Network Corp. of Japan, if it fails to prove capable of turning a profit independent of Apple's market performance.
Hiroshige Seko, head of Japan's Ministry of Economy, Trade and Industry, recently said Japan Display must demonstrate it is more than a commodity supplier to Apple if it intends to retain INCJ investments, reports The Wall Street Journal.
In May, the display maker reported a $294 million net loss for the fiscal year ending in March citing economic headwinds and a downturn in smartphone demand. The poor performance capped off record losses posted over the past two years.
Since a good chunk — historically about 50 percent — of Japan Display orders end up serving iPhone, the firm felt the pinch when Apple saw its handset sales slowdown for the first time ever in April. As a result, Seko and the INCJ are clearly wary of leaning so heavily on a single source of revenue.
"Right now, where it's effectively an Apple contractor and their performance automatically gets worse when Apple's performance gets worse — that kind of situation just doesn't work," Seko said of Japan Display.
In 2012, INCJ architected a deal that brought together the struggling display manufacturing units of Sony, Hitachi and Toshiba under the Japan Display moniker. The government-backed organization is currently the display maker's top shareholder with a 35.6% stake.
According to the WSJ, Seko offered two potential futures for Japan Display: keep the business under Japanese control, or open the company up to a potential takeover by foreign interests. Japan is traditionally extremely protective of its homegrown technology, though Seko believes the thinking no longer applies to a quickly shifting global market.
"Instead of clinging to commoditized businesses, I believe Japan should focus on cutting-edge technologies where other countries haven't caught up," Seko said. "That's when we can make solid money, and then when these become commoditized, it's fine to yield them to other countries."
A recent example of foreign interests acquiring domestic Japanese assets came earlier this year when Apple partner Foxconn purchased Sharp in a deal worth $3.5 billion. Perhaps not coincidentally, Japan Display played Foxconn's opposite in a protracted bidding war, though the local firm lacked the resources to match the Taiwanese company's deep pockets.
Looking ahead, Japan Display is said to be working toward a diversification strategy that entails a move away from smartphones, a pivot that requires additional investments from INCJ. The company is also said to be seeking loans to develop OLED technology, a component rumored for inclusion in next year's iPhone.
Charles Martin
Malcolm Owen
Andrew O'Hara
William Gallagher
4 Comments
Time for Apple to buy them out... for 50¢ on the dollar.
The Japanese are being outcompeted and outclassed in many of the industries they focused on. The Koreans are superior in display technology. The Taiwanese are the best at CPU fabrication. The Americans are now the best at non volatile memory with Intel's/Micron's development of 3D XPoint. Apple's CPU design prowess is the best in the world right now also.
There is no value to Japan display. Homegrown Japanese technology in this case is worth very little. Apple is going to leave LCD technology and will be using OLED. Both LG and Samsung can deliver those panels. Japan display cannot.
It is interesting that the Japanese government is upset with the company's dependence on the Apple contract. LG and Samsung are going to compete heavily to get Apple's business. And that's the real problem. Japan display cannot compete with the Koreans for Apple's business. They simply do not have a product as they cannot manufacture high quality OLED panels in the numbers that Apple requires. And when they no longer manufacture panels for Apple, they will have no business. Even the Chinese manufacturers are clamoring for OLED panels from the Koreans.
Japan is in trouble across many industries for similar reasons. It is quite telling when Japan desired to move into aircraft manufacturing and have essentially failed. They have partnered with Boeing on building some aircraft parts while Bombardier from Canada was able to develop and manufacture some very nice aircraft without the type of assistance that the Japanese manufacturers had gotten from their government.
The whole notion of Japan focusing on cutting edge technologies is ludicrous. Japan does not lead in any cutting edge technology. It is becoming more and more obvious as Apple continues to move away from Japanese component suppliers. The cameras and the displays were the only two major components left. LG innotek is now supplying the cameras although the image sensor still comes from Sony. With Japan display losing out to OLED, Sony's image sensor may be the only Japanese component left in the next iPhone. And it will be only a matter of time before LG decides to build its own image sensor and profit from the entire unit. LG is the only company mass producing large OLED panels. Sony still cannot do it. LG can easily match Sony's image sensor technology long before Sony can field any type of capable competitor to LG OLED panels whether large or small.
JDI should have done better. They would definitely have gotten the Apple Watch had they focused on OLED. It's now over. The Koreans are working feverishly to bring yields up and costs down while Japan Display needs capital for R&D to even develop OLED.
So once again Apple is Doomed™ ?