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iPhone supplier Japan Display to take $1.5bn charge in reform push

Turnaround plan calls for 30% payroll cut, factory consolidation, shift to OLED

Japan Display said on Aug. 9 it will implement a turnaround plan under new CEO Nobuhiro Higashiiriki.

TOKYO -- iPhone supplier Japan Display will take 170 billion yen ($1.5 billion) in special charges for the current fiscal year through March, as part of a sweeping move to restructure its loss-making liquid crystal display operations, the company announced Wednesday.

The major manufacturer of small LCDs for smartphones also reported a net loss of 31.5 billion yen ($286 million) for the April-June first quarter, far larger than the loss of 11.8 billion yen it posted a year earlier.

The company now anticipates a fourth straight annual net loss, with the red ink possibly exceeding 200 billion yen ($1.8 billion).

The massive bleeding is a big embarrassment for its top shareholder, the government-backed Innovation Network Corp. of Japan, or INCJ, and its overseer, the Ministry of Economy, Trade and Industry.

Created through the merger of the LCD businesses of Sony, Hitachi and Toshiba, Japan Display is a government-coordinated effort to counter South Korean electronics giants Samsung Electronics and LG.

Five years on, however, the South Korean manufacturers still reign, while the Japanese company is awash in losses.

Reform time

A new CEO, Nobuhiro Higashiiriki, was brought on board in June to craft a turnaround plan. For now, belt-tightening is the 69-year-old boss's top priority.

Japan Display will slash fixed costs by 50 billion yen a year by laying off 3,700 employees worldwide, or nearly 30% of its workforce. The layoffs will mostly affect factories in China and the Philippines, but will also take place in Japan.

The company will terminate LCD production at its flagship plant in Ishikawa Prefecture, central Japan, by the end of the year and repurpose it to produce organic light-emitting diode, or OLED, panels, which are increasingly coming into favor for their bendability, superior energy efficiency and excellent image quality.

Some of the new iPhone models due out this fall are expected to feature OLED panels, and Chinese smartphone makers are likely to follow Apple's lead.

"We will become a leading manufacturer of OLED displays," CEO Higashiiriki said in a press conference.

He said Japan Display will work on technology to mass-produce OLED displays over the next couple of years and make the business profitable in fiscal 2019.

The company also aims to reduce its reliance on smartphone parts production, a volatile business that accounted for 81% of its sales in fiscal 2016. Japan Display aims to lower the ratio to 70% in fiscal 2019 and to 55% in fiscal 2021 by increasing sales of nonmobile applications, such as those used in automobiles.

As a key supplier for Apple, Japan Display quickly ran into trouble when iPhone sales started slowing. The U.S. tech giant's recent shift away from LCDs and toward OLEDs also hurt, as the Japanese company lacked the billions of dollars needed to set up an OLED panel factory on its own.

Meanwhile, leading OLED players LG and Samsung Electronics are each set to pour tens of billions of dollars into new production facilities. Chinese latecomers enjoying government support, such as BOE Technology Group, have come out with investment plans as well.

Japan Display is now looking for a capital injection from an outside partner to fund its massive investment needs.

The company plans to choose a partner by March, possibly with a major OLED customer, an investment company or a Chinese company, Higashiiriki said.

Japan Display's three main creditor banks -- Mizuho Bank, Sumitomo Mitsui Banking Corp. and Sumitomo Mitsui Trust Bank -- have agreed to provide fresh credit lines worth 107 billion yen to help the company implement its turnaround plan, in exchange for loan guarantees from the INCJ.

The INCJ owns 35.6% of Japan Display. It unloaded about half of its holdings in the company's initial public offering in March 2014.

The government-backed fund reaped a handsome profit from the IPO, though Japan Display's fortunes have gone progressively downhill.

Its share price closed 1.5% lower at 195 yen on Thursday, or about a fifth of the IPO price of 900 yen.

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