1,200 employees were laid off and the CEO resigned. Japan's JDI was in turmoil.

According to Kyodo News, Japan Display Inc. (JDI) announced on Wednesday that it will take additional restructuring measures, including increasing the number of layoffs in Japan to 1,200. At the same time, the company's CEO Yoshiyuki Tsukizaki will resign in September and the current CFO Minoru Kikuoka will take over his position. Kyodo News pointed out that this number of layoffs is more than the previously announced 1,000 people, accounting for more than a quarter of the company's total number of employees in Japan.

This means that the Japanese panel manufacturer, which has been struggling due to Apple's shift to OLED, has taken a further step towards the abyss.

After the world entered the era of LCD panels, Japanese companies were the initial kings, such as SHARP, NEC, Toshiba, etc. Now, Samsung and LG of South Korea occupy the first and second positions in the global market respectively, and the living space of Japanese companies has been compressed. What is even more cruel is that Japanese companies also face challenges from Chinese and Taiwanese companies. So, how did the Japanese display panel industry gradually die out?

In 2004, Sanyo and Seiko Epson jointly entered the LCD panel industry. In 2006, Sanyo Electric transferred its shares to Epson and withdrew from the industry, while Epson withdrew from LCD panel manufacturing in 2012.

Japan's NEC closed its Kagoshima LCD panel factory in 2009, and in 2011 sold 70% of its shares in a company producing small and medium-sized LCD panels to China's Shenzhen Tianma Group, withdrawing from LCD panel manufacturing.

On December 27, 2011, Sony and Samsung reached an agreement, whereby Samsung paid approximately US$935 million in cash to acquire 50% of Sony's shares in S-LCD (a joint venture LCD panel company between Sony and Samsung). Through the acquisition, Samsung will wholly own S-LCD, and Sony will also withdraw from LCD panel manufacturing.

Remember, since 2011, all panels for Sony LCD TVs have been purchased from other companies.

Mitsubishi Electric also withdrew from LCD panel manufacturing in 2014.

Sharp made a mistake in its direction by investing heavily in plasma technology in 2008. Coupled with the drag of its solar energy business, it gradually declined and was acquired by Hon Hai Group in 2016. Hon Hai has decided to set up a factory in Guangzhou, China.

As for the remaining Japanese companies, Toshiba, Sony, and Hitachi integrated their LCD panel manufacturing equipment-related businesses to form Japan Display Inc. (JDI) in April 2012. At the same time, Toshiba withdrew from the LCD display business in 2012, and Hitachi withdrew from the LCD display business in 2016.

Together with these three companies, Japan's INCJ (Industrial Innovation Organization) also founded JDI, an investment fund with official Japanese background. As a result, JDI became the only company in Japan that still produces display panels on a large scale.

JDI is in a high-end position in terms of LCD panels for mobile phones. When Chinese mobile phone brands release new flagship phones, they will definitely say that the screens are purchased from Japan's JDI to highlight their quality and high-end.

But in fact, JDI's business has not been good since its establishment, with losses for three consecutive years from April 2014 to March 2015, April 2015 to March 2016, and April 2016 to March 2017.

In November 2016, in the semi-annual financial report for fiscal year 2016 released by JDI, JDI continued to suffer losses and announced plans to lay off 4,700 employees, equivalent to 30% of the total number of employees.

Why did this happen? Because Japan's JDI's LCD panel technology is at the high end, and it is the main competitor of Samsung in the high-end field. Since Samsung was the first to launch OLED panels, it was a generation ahead in technology. In 2016, the entire market's mainstream high-end Android smartphones turned to OLED, and Samsung achieved a monopoly on OLED mobile phone panels. Naturally, JDI was the one that suffered the most.

In addition, JDI is highly dependent on Apple. Apple's mobile phone, which accounts for half of JDI's sales revenue, had weak sales in 2016. As a result, JDI not only suffered huge losses last year, but also laid off 30% of its employees, with 4,700 people losing their jobs. To make matters worse, Apple, which is the mainstay of JDI's profits, also announced in 2016 that the next generation of Apple mobile phones (iPhone 8) will use OLED panels.

At this time, Apple actually still had expectations for JDI. If JDI could achieve mass production and provide OLED screens in 2017, Apple would continue to cooperate. However, later facts proved that JDI was too slow and it was impossible to achieve mass production of OLED technology in 2017, which made Apple completely give up on JDI and finally chose Samsung as the only screen supplier.

Despite the internal and external troubles, JDI announced at the end of 2016 that it would open the Shiraishi factory in Ishikawa Prefecture at the end of December, citing an increase in orders from LCD panel manufacturers such as Huawei and OPPO. In fact, the factory was supposed to be opened at the end of June, but JDI delayed opening it because it was worried about the financial consequences of calculating factory depreciation as soon as it was opened.

In 2016, Huawei, OPPO, vivo and other Chinese first-tier manufacturers all switched to OLED screens for their high-end smartphones. Why did JDI suddenly announce the opening of this factory? The reason is that in the fourth quarter of 2016, Chinese mobile phone brands' orders to JDI increased, but this was due to the shortage of OLED screens. This was a helpless choice and was unsustainable.

JDI's consolidated financial report for fiscal year 2018 (ending March 31, 2019) released last month showed that the final profit and loss was a loss of 109.4 billion yen (about 6.85 billion yuan), marking five consecutive years of losses.

In fact, since Apple and major mobile phone manufacturers entered the OLED era, JDI's current fate was doomed.

On April 12, Japan Display Inc. (JDI) announced that it had accepted an investment of 80 billion yen from TPK, Fubon Tsai's private investment company Cosgrove Global Ltd. and Topnotch Corporate Ltd., and China Harvest Technology Investment Management Co., Ltd. If the deal is successfully completed, the three companies will acquire 49.8% of JDI's shares, replacing Japan's public-private fund INCJ to become the largest shareholder of Japan Display Inc.

People familiar with the matter analyzed that the ultra-low price of 50 yen per share is the key factor, because OLED technology is mainly in the hands of Japanese and Korean manufacturers. The company had no leader in the past due to management problems and the costs were too high, but after the new team takes over, it will carry out a substantial organizational downsizing.

TPK and Japan Display have signed an agreement to cooperate on LCD products. Since TESLA is also a TPK customer, the two sides have room for complementarity. China Harvest and Japan Display are cooperating on OLED technology and plan to invest in new production lines. In the briefing, Japan Display has stated that of the 80 billion yen in funds obtained, in addition to 38 billion yen for daily operations, 9.2 billion yen will be invested in the research and development of OLED and VR projects.

Japan Display also allocated 32 billion yen in capital expenditures, including 10 billion yen for new OLED production lines, 12 billion yen for automotive product development, and the last 10 billion yen for new product development. People familiar with the matter analyzed that Japan Display still has quite good technology and is optimistic about the company's development in the automotive panel market after the transformation.

On April 12, TPK announced that it had signed a letter of intent with Suwa Investment Holdings to participate in the private placement of Japan Display through Suwa. Our interview revealed that the teams of the three companies are currently conducting due diligence on Japan Display to understand the true situation of the company. Since the three companies control Japan Display through Suwa, the allocation of the three board seats in Suwa has not yet been determined. Therefore, it is unclear whether TPK will list Japan Display as a subsidiary or related company in the future. Although the stock price of Japan Display once surged, it has gradually fallen in recent days.

What is curious is that in 2017, Sharp, a subsidiary of Foxconn, also intended to invest in this company, but the deal ultimately failed. Why is the Japanese government willing to hand over Japan’s last panel factory to the Taiwan-China coalition this time?

Japan Display issued a 59-page English press release to explain the entire case. The Japanese government is willing to let go for three main reasons: First, although Japan Display underwent a major transformation last year, its revenue still mainly depends on LCD panels for mobile phones. However, last year, Apple's mobile phones with LCD screens did not sell well, resulting in Japan Display's failure to achieve its goal of turning losses into profits.

Second, there is a problem with the cash situation. The financial report submitted by Japan Display in February 2019 showed that the company had a cash outflow of 3.6 billion yen in the first quarter. If the first three quarters of 2018 are added together, the total cash outflow exceeded 40 billion yen. People familiar with the matter revealed that the company is on the verge of running out of cash.

Third, small and medium-sized OLED panels have become mainstream. Apple's new generation of mobile phones may be fully replaced with OLED panels. JDI has OLED technology but does not have a competitive OLED production line. Other businesses cannot see big growth.

Apple is probably the last straw that broke the camel's back for JDI, which is why the Japanese government is willing to give up its dominant position at an ultra-low price of 50 yen per share. Currently, the three companies are still investigating the true operating conditions of Japan Display.