Apple and JDI finalize a major funding transaction of at least 50 billion yen

Apple supplier Japan Display Inc said it aims to finalize a major funding deal of at least 50 billion yen ($468 million) by the end of this month, after a Chinese investment group pulled out, forcing Apple to act hastily.

Japan Display's new CEO Kioroka Minoru told Reuters in an interview that LCD screens are seeing renewed interest as the market reflects strong demand for reasonably priced smartphones with low-cost screens.

"Our deal value is close to 50 billion and I believe we can finalize the deal this month," said Kikuoka, who took charge of the cash-strapped display maker in September.

If a deal is reached, it would ease the immediate risk of a cash crunch after Chinese investment company Harvest Group withdrew from the consortium of investors in the rescue plan.

Japan Display said Hong Kong-based Oasis Management still plans to invest $150 million to $180 million, while Japan Display's main customer, Apple, is reportedly planning to invest $200 million.

The Japanese display maker has been losing money for the past five years as a belated shift to organic light-emitting diode (OLED) screens has cost it orders from Apple, which accounted for 60.6% of Japan Display’s revenue in the last fiscal year ended in March.

Kikuoka said orders for LCD screens from major customers were "larger than originally planned." This follows a recent report in the Nikkei Asian Review that Apple has asked suppliers to increase production of its iPhone 11 models by about 10%.

Kikuoka also said the company has started producing OLED screens. Sources said Japan Display will produce OLED screens for Apple Watch this year.

Asked about mass production of OLED panels for smartphones, he said the company would seek business partners or investors and avoid overcapacity.

The establishment of
JDI (full name Japan Display Inc.) is not accidental, but the inevitable product of competition in the panel industry. In 2011, the Japanese panel industry was increasingly depressed, and Japanese companies fighting alone could not compete with Korean panel manufacturers led by Samsung. So, led by the Japanese government, Sony, Toshiba, Hitachi and Panasonic signed an agreement to integrate their LCD panel businesses and established Japan Display Inc. (JDI).

In just a few years, JDI has experienced both glory and desolation. According to JDI's financial report in 2018, the company's annual operating income was 636.7 billion yen, a year-on-year decrease of 11.3%, an operating loss of 31 billion yen, and a net loss of 109.4 billion yen attributable to the company. Five consecutive years of losses forced JDI to make the decision to lay off 1,000 employees and cut the salaries and benefits of management personnel.

Many people attribute JDI's decline to its over-dependence on Apple, while others believe that JDI is just a technology nerd who is "sticking to one path until the end." However, I believe the key to the problem lies in the capital behind it that holds a 70% stake - INCJ (Japan Innovation Investment Corporation).

INCJ is the reason for success and failure. INCJ
is the full name of Japan Investment Corporation, also known as the Japan Industrial Innovation Investment Organization. It is an investment company jointly established by 19 private enterprises led by the Japanese government. In just a few years, it has become the largest investment company in Japan. Its purpose is very simple, that is, to provide Japanese companies with capital and various research and development support through public-private cooperation, so as to enhance the competitiveness of local companies.

It sounds good, but the Japanese's arbitrary rule is also reflected in investment. JDI was established under the leadership and investment of INCJ. At the beginning of its establishment, INCJ provided JDI with nearly US$2.6 billion in financial support, accounting for 70% of the company's shares.

INCJ made JDI's early glory, but its "dictatorship" also laid the groundwork for JDI's future crises.

Soon after its establishment, JDI won Apple's LCD screen order, ushering in its most glorious era. At that time, the screens of iPhone 7 and 7 Plus were all from JDI, and a number of domestic flagship mobile phones including Huawei and Xiaomi also used JDI screens. At that time, JDI was in great glory.

However, JDI, which had tasted the sweetness, did not keep up with the times and shift its focus to OLED. The reason was simple: it was too expensive. At that time, Samsung SDC almost took up the entire small and medium-sized AMOLED market, accounting for 90%; LG Display was thriving in the high-end large-size TV panel market; for JDI, OLED was starting from scratch, which meant a lot of human and material investment with no visible benefits. As an investor, INCJ would never allow such a thing to happen.

So when Chinese and Korean panel manufacturers were laying out OLED production lines, JDI was still dreaming that "after LCD, there will be LCD", and believed that OLED was an "insurmountable mountain". It was not until the iPhone X with AMOLED screen was launched in 2017 that JDI realized the seriousness of the problem - in fiscal 2017, JDI suffered a cumulative loss of 247.2 billion yen (about 14.234 billion yuan), the largest loss in the company's history.

In the face of crisis
, the Japanese once again resorted to a trick: merger. In 2017, JDI and JOLED merged, and the Japanese tried to make a comeback by relying on the deep technical accumulation of the two companies, but the global display panel industry landscape is no longer what it used to be.

Chinese panel companies represented by CSOT and BOE rose rapidly, with shipments approaching those of Korean companies and accounting for 30% of the global market at the time. Korean panel manufacturers, which have always been at the forefront, have gradually closed their LCD production lines and focused on the OLED market. Today, Samsung SDC's share of the OLED panel market exceeds 85%, leading the small and medium-sized panel market with absolute advantage. It is too late for the lagging Japanese to catch up.

Faced with JDI's crisis, Apple did not abandon its former partner directly, but invested several times to help it restructure its business. In 2015, Apple donated a new LCD factory to JDI and paid most of the 160 billion yen (about 10.3 billion yuan); in June 2019, it was reported that Apple would invest another 10 billion yen (about 600 million yuan) in JDI.

Tim Cook is certainly not a philanthropist. The reason why he has repeatedly extended a helping hand to JDI is to check and balance the Korean panel company (Samsung) and avoid the situation where one of its own screen suppliers becomes the only one and is controlled by competitors. Unfortunately, for JDI, which has been losing money continuously, Apple's support is just a drop in the bucket.