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Key Apple supplier receives huge bailout as it struggles with switch to OLED

By Joshua Swingle

Published: Jan 31, 2020, 10:37 AM

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Apple Display

Key Apple supplier receives huge bailout as it struggles with switch to OLED

Apple supplier Japan Display has been bleeding money for three years straight. It’s been granted several bailouts in the past, including a $200 million cash injection from Apple itself, but today has received yet another one that hopefully secures its long-term future.

Japan Display is receiving almost $500 million

After a long period of discussions, Reuters reports Ichigo Asset Management has agreed to supply Japan Display with $463 million (50.4 billion yen) by the end of March. In exchange, the company is receiving a large number of preferred shares which bring its ownership level to 44.26% of the struggling manufacturer.

The CEO of Ichigo, Scott Callon, says he has spoken to Japan Display’s clients and “heard their confidence in its technologies.” Apple wasn’t mentioned by name, but it represents a whopping 61% of Japan Display’s income and must have also voiced its confidence in the company to investors.

As part of the bailout agreement, Scott Callon will be joining Japan Display as chairman to oversee operations. A second offer which would inject another $463 million into the company is possible at a later date.

If accepted, Ichigo’s stake in Japan Display would rise to over 70%, giving it effective control over the popular iPhone display manufacturer. The second-largest investor is INCJ, a fund backed by the Japan government.

An LCD plant for Apple is the primary culprit

Despite sourcing an extremely large chunk of its annual incoming from Apple, much of Japan Display’s recent money troubles are down to its previous dealings with the Silicon Valley-based giant.

Over four years ago, the supplier in question accepted approximately $1.5 billion in backing from Apple to construct an entirely new LCD plant. It agreed to pay the company back over time but ran into trouble when the company started using OLED screens on its newer iPhone models.

In response, Japan Display has started to move towards OLED panel production, but it still has a long way to go until manufacturing commences. In fact, many industry analysts believe Apple may have to wait another two years before it receives its first delivery.

Some employees of the supplier itself have also not helped the ongoing financial situation. A former accounting executive was fired in November 2019 for allegedly embezzling $5.3 million from the company between July 2014 and October 2018.

LCD orders from Apple will continue to drop

Throughout the gradual and long transition process from LCD to OLED display production, Apple is expected to continue relying on Japan Display for a large amount of LCD panels. Unfortunately, order numbers are predicted to continue dropping over time as demand for OLED grows.

Apple's most popular iPhone right now – the iPhone 11 – features and LCD screen just like the model that preceded it. However, its successor will instead feature an OLED display when it debuts in September, a move that will massively impact LCD orders.

This also applies to the compact 5.4-inch iPhone 12 variant Apple is developing. Of course, LCD screens will still be required, although demand will continue to shrink over the coming months.

The upcoming iPhone 9 will remain in production after September, as will the iPhone 11 and iPhone XR. However, the latter could be replaced with the iPhone 9 Plus in early 2021, which could be the last ever iPhone with an LCD display.

On the bright side, there will be huge demand for OLED displays from Apple by the time Japan Display has its production line working.