INCJ injects more capital to support Japan Display OLED ventures
Japan Display, which has struggled to deliver consistent profits since it was formed by a government-backed fund four years ago, is going back for more money.
The Japanese maker of smartphone screens agreed to a 75 billion yen ($637 million) injection of cash from Innovation Network of Japan, which is already its largest shareholder. INCJ, which has a track record of rescuing ailing Japanese corporations, created Japan Display by merging the troubled screen-making units of Toshiba, Sony, and Hitachi. Japan Display fell as much as 7.1 percent on Thursday.
Japan Display is headed for a third-straight annual loss, as global mobile demand sputters and competitors from Korea and China undercut prices to grab market share. Japan Display said it will use the capital for the development of organic light-emitting diode displays, which offer more vibrant and energy-efficient screens for mobile devices. Apple, its biggest customer, is considering shifting to next-generation smartphone screens as early as 2017.
“They were running out of cash,” said Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners. “This will be used for a combination of things” including OLED research and development as well as re-starting idled LCD plants, he said. “There’s also a political issue of not letting these companies go bust.”
Japan Display will issue 45 billion yen of convertible debt to INCJ and also get a 30 billion yen subordinated loan from the entity, Japan Display said in a statement in Tokyo on Wednesday. Japan Display climbed 2.5 percent to 366 yen at the close in Tokyo before the announcement, after broadcaster NHK reported that it was about to secure the financing.
The display maker also announced on Wednesday that it is raising its stake in JOLED, a Japanese OLED-display maker, to 51 percent from 15 percent, through a transfer of shares held by INCJ to Japan Display. JOLED is working on a new method of manufacturing OLED screens that lack higher resolutions, but are cheaper to make. The convertible debt issued by Japan Display can be exercised from 2019, at a strike price that’s about 17 percent higher than the current stock price.
Japan Display is seeking to reduce its reliance on mobile devices by shifting toward autos, virtual-reality gadgets, high-end laptops and other areas such as health care and education, the Tokyo-based company said in the statement. “The competitive environment has intensified due to a Korean manufacturer’s active marketing for OLED displays,” Japan Display said.
Japan Display and Sharp may need massive amounts of capital to invest in OLED, considered the future standard for iPhones and other mobile devices. Apple is struggling to find enough OLED supply for its new iPhones, expected next year, Bloomberg News reported in November. Initial costs for screen suppliers however could reach $2 billion, stretching their finances even before they get any firm orders.
“It’s a long-term investment — Sharp and Japan Display both have said we’re not going to be anywhere near supplying these displays in volumes,” Anvarzadeh said. “Forget 2017 or 2018, if they’re lucky they’ll get some volume growth in OLED perhaps in 2019.”