Japan Display – Continued Weakness & Lower Guidance
Japan Display (6740.JP) reported weak fiscal 2Q (September) results that were below the company’s May 13 guidance of 92,250m¥, although sales for the quarter were 81,192m¥ ($554.39m US), up 42.2% q/q and up 12.9% y/y, one of the few LCD display producers that saw positive y/y comparisons in the quarter. Operating profit was 4,900m¥ ($33.46m US), which was above company guidance of 4,200n¥. This puts 1H sales ~10.6% below guidance, with JDI lowering expectations for the fiscal year from 329,100m¥ ($2.247b US) to 280,000m¥ ($1.912b US), down by ~14.9% from earlier guidance, with a similar reduction in fiscal year operating profit from -19,400m¥ ($-132.46m US) to -34,900m¥ (-238.29m US).
Not surprisingly both mobile and non-mobile segments saw reduced demand as inflation slowed CE demand, and while end-user demand for automotive displays continued, manufacturers were still facing limitations on the availability of analog silicon components, which forced them to slow production and ordering in 1H. The company is concerned that potential energy availability issues in Europe, due to the Ukraine war, could also pressure automotive manufacturing during the winter, and with the automotive display segment growing from 28% of sales in 1Q ’18 to 48.8% in 2Q ’23, now JDI’s largest segment, the potential for continued limitations on the automotive display segment have been included in the reduced guidance. On the positive side, the depreciation of the yen has helped to offset some of the rising cost of material and transportation, but the net is lower overall.
Since JDI received a bailout from Ichigo (2337.JP) in 2020, the new management has been making considerable efforts to return the company to profitability, having sold one of its display module plants and contracted for the sale of a second, closing an older, inefficient fab, and commercializing a new technology and a lithography based OLED material deposition process that is being evaluated by Samsung Display (pvt). The company has developed a high resolution VR display (included in the ‘non-mobile’ category) that we believe is being used in headsets released by Skyworth (000810.CH), YVR (pvt), and Lynx (pvt), but that said, the best intentions can do little to overcome a global demand crisis, and JDI continues to face the same issues as most other small panel LCD display producers, including a recent reduction in VR display orders from a major customer. JDI is slowly making its way back toward becoming a force in the display space and returning to profitability, but the macro environment is going to extend that timeline, despite the company’s efforts.
Not surprisingly both mobile and non-mobile segments saw reduced demand as inflation slowed CE demand, and while end-user demand for automotive displays continued, manufacturers were still facing limitations on the availability of analog silicon components, which forced them to slow production and ordering in 1H. The company is concerned that potential energy availability issues in Europe, due to the Ukraine war, could also pressure automotive manufacturing during the winter, and with the automotive display segment growing from 28% of sales in 1Q ’18 to 48.8% in 2Q ’23, now JDI’s largest segment, the potential for continued limitations on the automotive display segment have been included in the reduced guidance. On the positive side, the depreciation of the yen has helped to offset some of the rising cost of material and transportation, but the net is lower overall.
Since JDI received a bailout from Ichigo (2337.JP) in 2020, the new management has been making considerable efforts to return the company to profitability, having sold one of its display module plants and contracted for the sale of a second, closing an older, inefficient fab, and commercializing a new technology and a lithography based OLED material deposition process that is being evaluated by Samsung Display (pvt). The company has developed a high resolution VR display (included in the ‘non-mobile’ category) that we believe is being used in headsets released by Skyworth (000810.CH), YVR (pvt), and Lynx (pvt), but that said, the best intentions can do little to overcome a global demand crisis, and JDI continues to face the same issues as most other small panel LCD display producers, including a recent reduction in VR display orders from a major customer. JDI is slowly making its way back toward becoming a force in the display space and returning to profitability, but the macro environment is going to extend that timeline, despite the company’s efforts.
Japan Display - Sales by Category & Operating Income - Fiscal 2018 - 2022 YTD - Source: SCMR LLC, Company Data
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