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Business deals

Apple pulled strings behind JDI-Sharp factory sale

Hakusan plant to drive push on LCDs and next-generation displays

Apple CEO Tim Cook presents the iPhone 11 on Sept. 10, 2019. The company sells smartphones with OLED and LCD screens.   © Reuters

TOKYO/OSAKA -- Sharp's decision to purchase a smartphone screen plant from Japan Display came at the behest of Apple, a major client, with hopes of transforming the facility into a key link in its long-term strategy on displays.

Japan Display on Friday said it is selling its halted Hakusan plant and the land under it to Sharp for 41.2 billion yen ($390 million), and part of the related equipment to a "customer" -- meaning Apple -- for 30.1 billion yen. Sharp will take control of the facility by October, and will resume the production of liquid crystal displays for iPhones there.

Though Apple has been switching more of its products to flexible OLED panels, it is expected to keep some cheaper, LCD-equipped options like the popular iPhone SE in its lineup. But LG Display, one of Apple's key suppliers for LCDs, is reportedly looking to reduce output. Apple likely hoped to secure a stable supply of the displays by transferring the Hakusan plant from JDI, which is in the midst of a turnaround, to Sharp.

"We received a request from a customer" that Sharp buy the factory, President Katsuaki Nomura had previously said. Roughly 20% of Sharp's revenue comes from Apple.

Sharp itself sees the Hakusan plant as a critical piece in its long-term strategy, with plans to consolidate the production of Apple-bound panels there, raising the factory's utilization rate and profitability.

Meanwhile, it will use the excess capacity at its Kameyama factory, which currently produces panels for Apple, to tap new opportunities in the automotive and other sectors. The company is believed to have been required to prioritize shipments to Apple until now.

Sharp is also looking beyond just LCDs. The extra capacity from the Hakusan plant will allow the company to prepare for the production of next-generation panels while maintaining its current output. Development efforts are underway for microLEDs and quantum light-emitting diodes, or QLEDs, which generate extremely vivid colors.

Commercializing these panels is expected to cost billions of dollars. Sharp is spinning off its display business in October to lower the bar for outside investment, with hopes of getting a head start on the successor to OLED panels.

Acquiring the Hakusan plant "will be a plus for our panel business in terms of boosting capacity and paving the way for next-generation displays," Sharp Chairman Tai Jeng-wu said Friday.

Tai wants to focus on appliances and other products where the Sharp brand carries significant weight, and plans to spin off the camera module business as well.

But displays still make up a significant chunk of Sharp's overall revenue and stable earnings are crucial for the business' future growth, especially as the display industry looks toward next-generation technologies.

The Hakusan plant represents a major step forward for JDI as well. Apple had originally shouldered most of the facility's 170 billion yen cost through a "prepayment." But production lines there were halted in July 2019 as competing OLED panels gained ground.

The roughly 71.3 billion yen in proceeds from selling the plant, its lot and related equipment will allow JDI to almost completely repay Apple. The Japanese company hopes this will allay concerns among its clients, and allow it to renegotiate contracts under better terms.

"We were finally able to reach a major milestone for our recovery," JDI President and CEO Minoru Kikuoka said Friday.

The company also aims to use this opportunity to curb its dependence on smartphones, announcing at a shareholders meeting on Wednesday that it will raise non-smartphone-related products to 50% of its revenue.

The LCD industry has changed significantly in the year or so it took for the Hakusan deal to be negotiated, due to growing competition from OLEDs and other factors. It remains to be seen how successful JDI will be in finding its way forward.

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