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Japan Display on the ropes as talks for China-led funding stall

LCD maker faces fifth straight year in red due to iPhone slump

Sales of the iPhone XR released last fall have disappointed, dealing a blow to Apple supplier Japan Display. (Photo by Rie Ishii)

TOKYO -- Liquid crystal display specialist Japan Display is in a race against time to secure funds for survival, after saying Thursday that it is on track for a fifth-straight annual net loss.

Founded in 2012 through a merger of the liquid crystal display businesses of Hitachi, Toshiba and Sony, Japan Display has been in talks with Chinese and Taiwanese companies for a cash influx since the end of 2018.

But the talks have failed to make significant progress as the company cannot come to terms with a consortium led by China Silkroad Investment Capital that includes Taiwanese touch panel maker TPK Holding and Chinese auto parts maker Minth Group. Japan Display hopes to garner about 60 billion yen to 80 billion yen ($540 million to $720 million) in exchange for making the consortium its leading shareholder.

The Chinese-Taiwanese consortium has separate plans to invest over $4.5 billion to build an organic light-emitting diode factory in mainland China, where it can expect government subsidies designed to boost domestic display production. Because Japan Display has little extra cash to spend, it is proposing to provide intellectual property instead.

The clock is ticking. Japan Display had 54.3 billion yen in cash on hand at the end of December -- 26.5 billion yen less than at the end of March, despite raising 55 billion yen this fiscal year.

The company's troubles grew after Apple, one of its key clients, incorporated OLED panels into its iPhones in 2017. It was forced to spend more than 140 billion yen last fiscal year on layoffs and streamlining production facilities.

The company bet heavily on the iPhone XR -- the new LCD-equipped device launched last fall -- to drive its recovery, raising 55 billion yen through investments and selling plants to boost production. But by the end of 2018, it was clear that the model had flopped: orders for XR screens have nearly halved.

Although Japan Display says it is considering further restructuring efforts, it faces narrowing options to stage a comeback on its own, given its lack of dedicated facilities for OLED production. Outside sponsors are one of the few alternatives left.

The display panel maker projects an operating loss of more than 20 billion yen for the year ending in March -- an improvement on the 61.7 billion yen hole in fiscal 2017, but nonetheless a second straight annual loss on an operating basis. The company had previously targeted a 1% to 2% operating profit margin.

For the April-December period, Japan Display logged a 10.8 billion yen net loss on an 18% plunge in sales on the year to 465.3 billion yen.

"Management takes this result to heart," President Yoshiyuki Tsukizaki said at an earnings briefing on Thursday.

Even if the company reaches agreement with the China-led investment group, the trade war between the U.S. and China could stand in their way. In 2016, the Committee on Foreign Investment in the U.S. blocked a Chinese company from acquiring a German chipmaking equipment maker with an American subsidiary.

Japan Display's share price has slumped under 80 yen, compared with the 900 yen offer price in March 2014. Depending on what the public-private INCJ, its largest shareholder, and the Japanese government want, "we can't reject the possibility of a court-led turnaround," a source familiar with the matter said.

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