Long time iPhone supplier suffers financially from decision made by Apple
A major decision made by Apple has taken its LCD panel supplier Japan Display from the penthouse to the outhouse. Back in 2014-2015, when the Apple iPhone 6 and iPhone 6 Plus brought a new design and larger LCD screens to iPhone users, Japan Display started to build a new factory in the middle of the country. Citing sources inside Japan Display, Reuters reports that Apple gave the firm $1.5 billion to use for the construction of the new plant, to be repaid from some of the money that Japan Display would receive from sales of its panels.
As it turns out, Apple's decision to switch to OLED displays for 2017's iPhone X and last year's iPhone XS and iPhone XS Max has left the new facility running at only 50% of capacity. And while the more affordable iPhone XR does feature a 6.1-inch LCD display, sales of the device have not been as strong as estimated. With the best battery life found on any iPhone, a powerful A12 Bionic chipset under the hood, and a single lens camera on the back that produces outstanding photographs, the iPhone XR should have been a big hit. But a number of things outside of Apple's control have dampened sales of the device, hurting Japan Display in the process.
For example, the strength of the U.S. Dollar against the Chinese Yuan meant that to keep its margins, in China Apple had to initially price the iPhone XR above the cost of higher spec'd phones such as the Huawei Mate 20 Pro. In addition, the U.S.-China trade war continues to hurt the country's economy. Lastly, a rise of nationalism in China over U.S. attacks on Huawei and the arrest of the company's CFO in Canada led to an unofficial boycott on Apple products in China.
And now, the future for Japan Display looks bleaker than it ever has. The company still owes Apple money for the $1.5 billion that the U.S. tech giant laid out to help its supplier build the new factory. One of the sources inside the firm says that the decision to build the new plant was the correct one at the time. "In retrospect, the new plant was unnecessary, but the decision wasn’t wrong back then. Japan Display started to pick up steam thanks to Apple at the time, and Apple wanted the new plant."
Japan Display hopes to get a cash infusion from a Chinese investment firm
What has also hurt Japan Display is that it made its decision to expand into OLED panels too late. And its bread and butter product is facing heavy competition. For example, back in 2015 Japan Display was responsible for the LCD screens on 33% of Huawei's handsets. Now, that figure is down to 4% thanks to the improved panels turned out by Chinese competitors like BOE Technology and Tianma Microelectronics.
Starved for cash, Japan Display is trying to work out a deal with China's Silkroad Investment Capital, according to another two unnamed sources that spoke with Reuters. In return for close to a majority stake in Japan Display, Silkwood would invest $500 million to $700 million in the company. The Investment group would then build an factory churning out OLED panels in China using Japan Display's technology.
Japan Display wasn't alone among companies in Apple's supply chain that saw big profits ahead because of the strength in sales of the iPhone 6. One person working at an Apple supplier said "We were all thrilled to see lifetime sales of a single iPhone model reaching 100 million units. Supplying components for just one model in massive volume is extremely cost-efficient,” he said. “At the same time, we exposed ourselves to huge volatility risks."
There are rumors that Apple was going to use OLED panels on all three of the upcoming 2019 iPhones, which are expected to carry the same screen sizes as the current models. However, the latest word from top Apple analyst Ming Chi-Kuo says that the iPhone XI and iPhone XI Max will sport OLED panels and the iPhone XR (2019) will have an LCD display.
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