Japan Display – Quick Notes
apan Display (6740.JP) is a company in transition, actually a company that has been in transition for quite a while. Japan overall had been a dominant supplier of LCD displays, starting with wrist watches in the early 1970’s, progressing to calculators, and to hand-held TVs (‘pocket TVs’) by Seiko (6724.JP) in Japan in the early 1980’s, and by the late 1980’s Japanese companies dominated the production of LCD displays and LCD based products. As the millennium approached, South Korean and Taiwanese companies began to challenge Japan’s position in the LCD space, and in 2011 three Japanese LCD display producers, Sony (SNE), Toshiba (6502.JP), and Hitachi (6501.JP) merged their small/medium size LCD businesses together to form Japan Display, along with a $1.49b US ($1.642b today) from the Innovation Network Corporation of Japan, a partnership between the Japanese government and 19 corporations that has been loaning capital to Japanese companies since 2009.
JDI was successful in building a small/medium size LCD panel business with the capital and assets donated by each partner, along with production assets purchased from Panasonic (6752.JP) and was listed on the Tokyo Exchange in 2014, however by 2015, price competition and relatively high operating costs pushed JDI into the red, despite being the primary small panel supplier to Apple (AAPL). Unfortunately for JDI, in 2017 Apple began a gradual change from LCD displays for the iPhone to OLED displays, and JDI’s small panel mobile business has never recovered. A restructuring in 2017 led to substantial layoffs and the closure of the company’s Hakusan LCD fab, which was eventually sold to Sharp (), but as Apple continued its iPhone transition to OLED JDI was left to find a new customer base. Apple itself made an investment of $100m in 2019 as the company restructured a second time, with more plant closings. JDI was able to develop enough OLED capacity to supply Apple with watch displays but was so far behind in OLED development that it made little difference.
After mounting losses in 2018 and 2019, JDI ceded control of the company to Ichigo Asset Management (2337.JP) for$715m in capital, and at the time the company indicated that they would begin development of a proprietary OLED technology that would be commercialized by 2022. We give considerable credit to Ichigo management, who has brought costs down far more consistently than previous managements and has made progress on the promised OLED technology known as eLeap (see notes from 2/10/23, 4/10/23, 4/27/23, 5/10/23) the uses photolithography for the placement of OLED materials rather than the more typical thermal deposition.
However as JDI moves closer to becoming profitable again as part of the overall display industry, they have been facing the same weak demand and pricing issues as other display producers, and that has slowed the process toward positive earnings further. Citing “Triple punch of higher costs, lower demand, & lower capacity utilization driving large losses across global display industry – Rising material & energy costs, global inflation, rising interest rates, & global economic slowdown remain significant headwinds”, JDI reported fiscal 2022 (3/2023) of ¥270.7b ($2.02b US), down 8.5% y/y but slightly above the company’s forecast, while net income (loss) declined further, increasing from ¥8.1b last year to ¥25.8b this year.
JDI was successful in building a small/medium size LCD panel business with the capital and assets donated by each partner, along with production assets purchased from Panasonic (6752.JP) and was listed on the Tokyo Exchange in 2014, however by 2015, price competition and relatively high operating costs pushed JDI into the red, despite being the primary small panel supplier to Apple (AAPL). Unfortunately for JDI, in 2017 Apple began a gradual change from LCD displays for the iPhone to OLED displays, and JDI’s small panel mobile business has never recovered. A restructuring in 2017 led to substantial layoffs and the closure of the company’s Hakusan LCD fab, which was eventually sold to Sharp (), but as Apple continued its iPhone transition to OLED JDI was left to find a new customer base. Apple itself made an investment of $100m in 2019 as the company restructured a second time, with more plant closings. JDI was able to develop enough OLED capacity to supply Apple with watch displays but was so far behind in OLED development that it made little difference.
After mounting losses in 2018 and 2019, JDI ceded control of the company to Ichigo Asset Management (2337.JP) for$715m in capital, and at the time the company indicated that they would begin development of a proprietary OLED technology that would be commercialized by 2022. We give considerable credit to Ichigo management, who has brought costs down far more consistently than previous managements and has made progress on the promised OLED technology known as eLeap (see notes from 2/10/23, 4/10/23, 4/27/23, 5/10/23) the uses photolithography for the placement of OLED materials rather than the more typical thermal deposition.
However as JDI moves closer to becoming profitable again as part of the overall display industry, they have been facing the same weak demand and pricing issues as other display producers, and that has slowed the process toward positive earnings further. Citing “Triple punch of higher costs, lower demand, & lower capacity utilization driving large losses across global display industry – Rising material & energy costs, global inflation, rising interest rates, & global economic slowdown remain significant headwinds”, JDI reported fiscal 2022 (3/2023) of ¥270.7b ($2.02b US), down 8.5% y/y but slightly above the company’s forecast, while net income (loss) declined further, increasing from ¥8.1b last year to ¥25.8b this year.
Japan Display - Sales & Share by Segment - Fiscal 2019 to 2023 - Source: SCMR LLC, Company Data
On the positive side, JDI signed an MOU with HKC (pvt) (see 4/10/23 note) for the development of JDI’s eLeap OLED technology, which they believe will generate royalties in fiscal 2023, along with an additional ¥18b in reduced fixed costs, but on a net basis, operating profit this year will only improve by 9%, against a sales decline of 11.3% as the company continues to face lower volumes and rising material costs as it develops new products, with eLeap mass production beginning in 2024. In the near-term JDI will continue to reduce its exposure to the commodity smartphone business (down 36% in f. 2022), increase its exposure to automotive displays (up 26% in f. 22) and bring back growth to their VR and wearable display business (down 15% in f. 22), which faced lower volumes as customers were forced to raise prices, all of which are the ‘standard’ year-end ‘fixes’ for most small panel LCD manufacturers.
While it is hard to put perspective on JDI’s short-term growth strategy given the current economic state, we do give them credit for posting intended actions the company will take to return to ‘mega-growth’ by 2026, some of which are financial, most of which involve Ichigo financing.
While it is hard to put perspective on JDI’s short-term growth strategy given the current economic state, we do give them credit for posting intended actions the company will take to return to ‘mega-growth’ by 2026, some of which are financial, most of which involve Ichigo financing.
- Ichigo lends JDI ¥20b to repay ST loan from INCJ, which puts Ichigo loans to JDI at ¥48b.
- Ichigo buys ¥53.7b of JDI debt from INCJ which eliminates all JDI debt to INCJ.
- Ichigo forgives ¥15b of JDI debt.
- INCJ returns Class A preferred shares to JDI at no cost. Shares cancelled.
- Ichigo does ¥86.7b debt swap with JDI (@¥45) on Ichigo loans to JDI, which eliminates all JDI debt.
- JDI issues ¥173.6b warrants to Ichigo (@¥45) which will provide capital for JDI growth.
Japan Display - Long-term Growth Forecasts - Source: JDI
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