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Electronics

Japan's Sharp reaps fruits of Apple ties in LCD business

But demand is fading as higher-end panels are increasingly being used in iPhones

Brisk demand for its LCDs from Apple is underpinning Sharp’s earnings.

OSAKA -- Japanese electronics maker Sharp has been reaping big gains from its strengthened ties with U.S. tech giant Apple, the key client of its liquid-crystal display panels.

Sharp's group net profit rose 290% to 53.2 billion yen ($487 million) in the 12 months to end-March, from a year ago. That growth is expected to continue, with the company forecasting a 43% expansion in net profit to 76 billion yen this fiscal year.

"We will greatly benefit from recovering demand for display panels," President Katsuaki Nomura said at a news conference on Tuesday.

Near-term prospects for LCD panels are good, with U.S. research firm DSCC forecasting a 33% growth in the market to $112 billion in 2021. This stems from robust demand for TV displays worldwide, especially large ones. The tight supply of driver integrated circuits and other LCD components is also contributing to higher panel prices.

Among the main producers of large TV panels are Chinese companies BOE Technology Group and China Star Optoelectronics Technology and Taiwan's AU Optronics. Sharp mostly focuses on small to midsized models, but it has a strong presence in tablets and notebooks, thanks to its extensive sales channels.

"Prices of (LCD) panels for IT devices are rising rapidly and this trend will continue for the next few months," said Yoshio Tamura, head of DSCC's Asian operations.

According to DSCC, Sharp had a 10.4% share of the global market for small and midsized LCDs last year, lower than those of BOE and Tianma Microelectronics of China, but having Apple as a major client is a big plus.

Sharp has greatly expanded output of its LCD panels following the acquisition of Japan Display's Hakusan factory in Ishikawa Prefecture last year. Sharp acquired the land and buildings from the troubled LCD maker, taking over the $390 million advance payment it owed to Apple. The factory resumed operations under Sharp in February.

Sharp's decision to purchase the plant came at the behest of Apple, with the American company eager to secure a stable supply of the low-cost displays by transferring the facility from JDI, which is in the midst of a turnaround, to Sharp.

This year, Sharp will likely supply 50 million units of LCD panels for iPhones, up 11% from the previous year, according to Mizuho Securities.

While LG Display of South Korea and JDI are cutting LCD production, Sharp is enjoying the survivor benefits as a main Apple supplier.

Yet, its good fortune may not last much longer. While Apple equips low-end iPhones with LCDs, it is increasingly using organic light-emitting diode, or OLED, panels in high-end models. South Korean giant Samsung Electronics has a virtual lock on the OLED market for smartphones.

"The Hakusan plant will see its iPhone panel production peak in this April-June quarter," said Satoshi Sakae, an analyst at Daiwa Securities.

Strengthening ties with Apple has worked for Sharp in the short term, but it is unclear how long that relationship will continue to work for the company. To cope with growing uncertainty, Sharp has made it easier to raise funds from other companies by spinning off its LCD business, which is vulnerable to market conditions.

Sharp's performance is improving in terms of capital ratio and free cash flow, but the question remains over how the company will use the cash it has accumulated as an Apple supplier for future growth.

At the news conference, Nomura stressed that the company will strive to boost its brand value, but the time for him to do so is running out fast.

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