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Japan Display still swimming in red ink after missing Apple wave

LCD panel maker fails to anticipate industry shift toward OLED

Japan Display President Shuji Aruga, left, broke the bad news at an earnings briefing Wednesday.

TOKYO -- Japan Display's dismal fiscal 2016 earnings stood out in the sea of good results from electronic-device makers, but the company has only itself to blame for misreading a clear shift in demand from its biggest customer -- Apple.

The major LCD panel manufacturer on Wednesday reported a group net loss of 31.6 billion yen ($277 million) for the year ended in March. The third consecutive year of net losses came despite Chairman Mitsuru Homma expressing hope for a annual profit as recently as February.

Japan Display continued a familiar pattern, having repeatedly downgraded earnings forecasts since its stock listing in 2014. President Shuji Aruga said at the earnings briefing that he felt "greatly responsible" for the disappointing result. Homma was a no-show.

Missing the boat

The red ink sprung mainly from the business of supplying liquid crystal display panels for smartphones, which generates roughly 80% of the company's sales. Japan Display struggled to keep output flowing smoothly, beset by delays in improving the production yield of a new type of panel.

South Korea's Samsung Electronics also snatched some business from Japan Display by pitching organic light-emitting diode panels to Chinese smartphone makers for use in their upmarket handsets.

Japan Display said during Wednesday's briefing that it aims to counter the setback in smartphone panels by boosting sales of LCD panels for other electronic devices, such as automotive displays. But this segment looks unprepared to deliver, accounting for only around 10% of the company's sales.

Storms ahead

"Three straight years of net losses will be viewed as a seriously negative factor when we consider additional loans," an official of a lender bank noted. But things could get even worse for Japan Display.

Apple, the source of roughly half of Japan Display's sales, is expected to use an OLED panel on the iPhone for the first time with the new model set for release in the fall. This change could sink Japan Display's fiscal 2017 sales by 20% compared with a year earlier, according to some estimates.

OLED displays are expected to make up a significantly bigger share of the iPhone's 2018 models, said Yoshio Tamura of research firm Display Supply Chain Consultants.

Apple's shift toward OLED panels likely will prompt Chinese smartphone makers to follow suit, since they have grown by imitating the U.S. tech giant. This poses a serious threat to Japan Display's plan to capture market share for its LCD panels among high-end Chinese-made models.

With its eyes fixed on LCDs, Japan Display kicked off production at a 190 billion yen panel plant in Japan's Ishikawa Prefecture in December. Though the company has the technology to manufacture OLED panels, it is unable to ready production in time to supply them to Apple in 2018, Aruga said, in essence admitting management's failure to anticipate a major shift in the industry.

Samsung, by contrast, has invested billions of dollars to raise its OLED production capacity. Fellow South Korean manufacturer LG Display is expected to begin supplying Apple in 2018.

Japan Display was created five years ago through a merger of the LCD panel operations at major Japanese electronics manufacturers under the lead of the Innovation Network Corp. of Japan. Still the top shareholder, the public-private investment fund has enlisted Nobuhiro Higashiiriki, president of Japanese OLED panel developer JOLED, to take the helm at Japan Display next month to try to change course. But some warn that navigating the transition from LCDs to OLEDs will would prove a challenge for even a deft hand.

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