Japan Display At the Crossroads

Japan Display Inc. (“JDI”) said that it would make “structural reforms” to deal with its current situation, the first of which will be to shut down one of its six production lines for LTPS, a G5.5 line at the plant in Nomi, Ishikawa. The shutdown is planned for December 2017 although the company said that it is investigating alternative uses. The company will also rationalise its five module assembly plants outside Japan (it has five).

The company will also reduce its workforce by 240 in Japan using voluntary early retirement and will reduce executive salaries. It will reduce its overseas workforce by around 3,500.

JDI will consolidate the operations of a 4.5G OLED pilot plant in Ishikawa into the Mobara plant which has a G6 OLED line.

Overall, the savings are expected to reduce its fixed costs by around ¥50 billion ($457 million) annually and with annual cash savings of around ¥30 billion ($274 million).

The company announced a loss of ¥20.3 billion ($276 million) for the first fiscal quarter to 30th June, up from a loss of ¥16.4 billion ($150 million) in the same quarter last year and from a loss of ¥22.2 billion ($203 million) in the previous quarter. Revenues were up 8.2% from last year at ¥188 billion ($1.73 billion) but down 22.9% from Q4 FY2016. However, gross profit fell from ¥8.4 billion ($77 million) in 2016 to ¥1.04 billion ($9.5 million) and from ¥22.25 billion ($185 million) in Q4 FY2016.

Looking ahead, the company said that it expects sales for this financial year to be down by 15% to 25% on an annual basis, as Apple, its major customer in recent years, switches to OLED.

Separately, JDI said that it has started the manufacture of LTPS LCDs for automotive use and would start to make the display in its Ishikawa plant. Around 20% of JDI’s business currently comes from the automotive sector and the company expects the market to grow at around 10% per year.

Analyst Comment

JDI really is in the wrong place at the wrong time and may have missed the boat for OLED completely. As OLED takes over in the smartphone market, the LTPS LCD business, already suffering from over-capacity, is likely to see even more surplus production and subsequent even fiercer price competition. DSCC has said that since Q3 2016, four new major LTPS LCD fabs have come online in China, causing utilisation to drop from over 80% to 60% in Q2 this year and meaning very severe price competition.

JDI said that it would accelerate its development of OLED production, but it’s hard to see who would invest to build a new mainstream OLED plant in Japan at the moment. That’s a shame as JDI, which was formed from the panel divisions of Sony, Toshiba and Hitachi and has a lot of good technology and engineers. In some ways, the company almost looks like a victim of the “Innovator’s Dilemma”, written about in the famous book of that title by Clayton Christensen. The company listened to its customers, who wanted LTPS LCDs, not OLEDs. However, OLED, while not a classic disruptive technology, as it still needs very good substrates and huge investments from companies that must already be good at LCD, is still causing a big disruption to the small/medium panel industry.

In a world that was operating on the same capitalist rules everywhere, JDI would have had a chance of becoming a key supplier of OLED, but its competition is the giant Samsung, which has huge profits from other businesses that it has been able to use to support the development of OLEDs and the Chinese who, effectively, have access to zero cost money. JDI doesn’t enjoy either of those advantages. The same is true of other suppliers, such as AUO, but JDI has been very dependent on smartphones and Apple in particular, so has less other business to get it over this crisis period.

I expect JDI to continue, but it’s hard to see how it gets back to a major place in the industry again. (BR)