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Apple supplier JDI logs $1bn loss as white knight hesitates

iPhone display maker stuck in 5th consecutive year of red ink

Japan Display has warned investors that there is doubt as to its ability to operate as a going concern.

TOKYO -- Japan Display, the result of a government-led attempt to give new life to the country's once-vibrant display industry, on Wednesday showed just how hobbled it is as it awaits a bailout from a now-hesitant Taiwanese-Chinese consortium.

JDI on Wednesday released its financial results for the 12 months through March. It incurred a net loss of 109.4 billion yen ($1 billion) on a consolidated basis for fiscal 2018, compared with a net loss of 247.2 billion yen the previous fiscal year.

It was JDI's fifth consecutive annual net loss.

The company also booked a plant-related impairment loss for the year.

The display maker -- which came about in 2012 through a merger of the liquid crystal display operations of Hitachi, Toshiba and Sony -- suffered on a number of fronts. It makes LCD displays for iPhones, sales of which are no longer booming like they did for the decade after Apple released the first smartphone in 2007. In addition, JDI has been left behind as the smartphone industry moves to organic light-emitting diode displays. It is also getting pummeled as competitors in China turn out comparable products at much lower costs.

And the outlook is for smartphone demand to further weaken.

The results announcement came about a month after JDI said it had accepted a bailout from a three-company consortium. At the time, the deal was looked at as the death knell for Japan's display industry. For 80 billion yen, companies from Taiwan and China would become the Japanese manufacturer's largest shareholder.

While releasing the company's financial results, President Yoshiyuki Tsukizaki and other executives were evasive when repeatedly asked if the consortium has delayed a decision about the bailout. The executives apologized and said talks are ongoing.

They also said JDI will seek support from INCJ, a Japanese public-private fund formerly known as Innovation Network Corporation of Japan, until the consortium comes through with its expected investment.

The three-company consortium has repeatedly delayed its decision since the bailout was announced on April 12, dashing JDI's hopes of getting the final go-ahead for the stake sale at its regular shareholders meeting on June 18.

According to sources, the consortium proceeded with a detailed assessment of JDI's assets after the bailout was reached and found that the company's operations had further deteriorated.

Although JDI says the Taiwanese-Chinese consortium has completed its due diligence, the three companies are proceeding with caution.

The stricken producer expects sales to decline 10% in the first half of fiscal 2019 from the same period a year earlier. But there is a risk that sales for the April-September term will shrink more than expected.

If the consortium continues to stall in pulling the trigger, JDI will likely face a financing crunch.

The company had nearly 70 billion yen in cash and deposits at the end of March. But in early April, when negotiations with the consortium reached a crucial point, a person involved said JDI could run out of funds that same month as it pays for materials and settles other costs.

But JDI on April 19 received a 200 billion yen bridge loan from the INCJ, and the company said it has arranged for an additional loan of 40 billion yen that it can take out if necessary.

Nevertheless, JDI remains in dire need of cash to buy the materials and components necessary to make LCD panels in time for the release of new iPhone models, which Apple puts out every autumn.

The company has been in need of cash at least since last summer, when it raised 45 billion yen that it put toward production increases and other operational purposes. Analysts say the company will need to raise tens of billions of yen by this summer, too.

If the consortium bows out, JDI may lose fundraising opportunities "as early as June," a source close to the company said.

"We have an alternative plan," Tsukizaki said about the consortium's hesitation, suggesting that the outlook for negotiations warrants no optimism.

On Wednesday, JDI also announced that Nobuhiro Higashiiriki was stepping down as chairman and CEO, effective the same day, and that Tsukizaki will concurrently serve as CEO.

This means a new management team will try to wrap up negotiations with the consortium.

In the meantime, JDI will cut 1,000 jobs, about 20% its workforce on a parent-only basis, as it scrambles to keep from falling into negative net worth. The company's equity-capital ratio stood at 0.9% at the end of March.

At its earnings briefing, JDI warned investors that there is "important doubt about" its continuing as "a going concern."

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