Japan Display Reports 4Q and 2016 results
While Japan Display (6740.JP) updated expectations for 2016 results on May 1, they reported full results last night. 4Q sales results were 4.4% above forecast and up 36% y/y, but we note that results from all panel producers in the 1st half of 2016 were dismal as panel prices were in steep decline. 4Q operating income was below expectations, as was net income and forex loss, as the value of the yen was 3.3% higher than expectations, was 3.6b¥ ($31.6m US). For the full year 2016 (ended March 31) sales were down 10.6% y/y with operating income up 10.7%, due to the easy y/y comparisons, but pre-tax, while better than last year, was still a ¥11.2b loss (-$98.4m US). Mobile device sales represented 82.4% of 2016 sales vs. 84.7% last year, and automotive/consumer was 17.6% vs. 15.3% last year, with strong automotive results in the US and Europe offset by weaker consumer product results.
Japan Display indicated that 1Q sales are expected to be down 25% q/q but up 3.2% y/y, and operating income is expected to be ¥-15b, substantially below the 4th quarter’s ¥8b (positive) and last year’s ¥-3.4b. The company cited seasonality, customer inventory, and new model launches as the reason for the 1Q sales drop, and higher fixed costs for the Hakusan fab and OLED R&D, as the reason for the operating loss. On a general basis, the company also indicated that seasonality and product changeovers would weaken 2nd quarter Chinese sales.
For the full year 2017 the company plans to accelerate its OLED development, with a focus on flexible displays produced on its Ishikawa G4.5 LTPS OLED pilot line and is preparing an OLED pilot line on their Gen 6 line in Mobara. They expect to begin pilot production this summer and full manufacturing in 1H 2018, which could be anywhere between April to September. Our model calls for phase 1 capacity of 5,000 sheets in April 2018 and phase 2 capacity of 10,000 sheets in March 2019. The company indicated that their OLED process was a real RGB stripe display, versus other OLED displays which shared a red or blue sub-pixel with a green one.
Japan Display indicated that 1Q sales are expected to be down 25% q/q but up 3.2% y/y, and operating income is expected to be ¥-15b, substantially below the 4th quarter’s ¥8b (positive) and last year’s ¥-3.4b. The company cited seasonality, customer inventory, and new model launches as the reason for the 1Q sales drop, and higher fixed costs for the Hakusan fab and OLED R&D, as the reason for the operating loss. On a general basis, the company also indicated that seasonality and product changeovers would weaken 2nd quarter Chinese sales.
For the full year 2017 the company plans to accelerate its OLED development, with a focus on flexible displays produced on its Ishikawa G4.5 LTPS OLED pilot line and is preparing an OLED pilot line on their Gen 6 line in Mobara. They expect to begin pilot production this summer and full manufacturing in 1H 2018, which could be anywhere between April to September. Our model calls for phase 1 capacity of 5,000 sheets in April 2018 and phase 2 capacity of 10,000 sheets in March 2019. The company indicated that their OLED process was a real RGB stripe display, versus other OLED displays which shared a red or blue sub-pixel with a green one.
| |  |
Japan Display OLED stripe configuration vs. typical Pentile configuration - Source: Japan Display
On a general basis, JDI continues to mandate a push to lower its break-even point and has implemented structural reforms by partially shutting down and consolidating assembly operations in China, but the company’s reliance on the mobile device business (aka smartphones) is still a significant issue, despite the effort to expand the automotive sales segment. The company issued ¥45b ($395m US) of converts to the Innovation Network Corporation of Japan, a quasi-government organization that was responsible for the formation of Japan Display itself, and received a ¥30b ($263m US) loan from INCJ, with the converts used to fund R&D for printed OLEDs and the loan for R&D in OLED evaporative projects. We note that the company shares in losses generated by JOLED (pvt), its soon-to-be OLED-only subsidiary.
Needless to say, Japan Display has a significant incentive to speed up its OLED development as Apple (AAPL), JDI’s largest customer, is considering moving part of its iPhone production to OLED displays. This represents a significant change for JDI and while they understand that should this happen, they will lose a portion of the Apple business to South Korean rival Samsung Display (pvt), they need to protect themselves by developing an OLED alternative as quickly as possible. They do have both their own OLED assets and R&D and now have the same from OLED specialist JOLED, but R&D and mass production can be very different animals and JDI needs to do this rapid OLED development while maintaining a viable LCD business, which we believe will be difficult at best. We note that the acquisition of JDI’s controlling interest in JOLED, which was originally scheduled for the 1st half of fiscal 2017 has been delayed until the end of December 2017.
Needless to say, Japan Display has a significant incentive to speed up its OLED development as Apple (AAPL), JDI’s largest customer, is considering moving part of its iPhone production to OLED displays. This represents a significant change for JDI and while they understand that should this happen, they will lose a portion of the Apple business to South Korean rival Samsung Display (pvt), they need to protect themselves by developing an OLED alternative as quickly as possible. They do have both their own OLED assets and R&D and now have the same from OLED specialist JOLED, but R&D and mass production can be very different animals and JDI needs to do this rapid OLED development while maintaining a viable LCD business, which we believe will be difficult at best. We note that the acquisition of JDI’s controlling interest in JOLED, which was originally scheduled for the 1st half of fiscal 2017 has been delayed until the end of December 2017.
RSS Feed