Japan Display could use a solid AppleCare plan

TPK Holding Co

01/07/2019 11:33

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Robyn Mak
    HONG KONG, July 1 (Reuters Breakingviews) - An AppleCare
plan can bring peace of mind. It is providing a big relief for
struggling Japan Display  6740.T , which just lined up a capital
injection of as much as $665 million, about 15% of which is
coming from the iPhone maker. It’s a rare sort of investment for
Apple  AAPL.O , but it has few alternative suppliers for such
screens. The imprimatur also should help Japan Display shore up
other backers. 
    A $750 million bailout for Japan Display collapsed last
month after two suitors walked away. The company’s deteriorating
financial health, worsened by a $1 billion net loss in the
fiscal year ending in March, was probably to blame. Apple now
joins an odd group that includes Chinese investment firm Harvest
Tech and Hong Kong-based activist Oasis Management to rescue the
company formed seven years ago by combining the LCD businesses
of Sony  6758.T , Hitachi  6501.T  and Toshiba  6502.T . 
    Ties between Apple and its Tokyo-based supplier run deep.
The company led by Tim Cook accounted for over 60% of Japan
Display’s revenue in the last fiscal year. Sluggish iPhone sales
and Japan Display’s failure to keep up with rivals in newer,
more expensive technologies have contributed to the troubles. To
ease the financial burden, Apple, which provided a $1.5 billion
loan for Japan Display’s new factory four years ago, also has
agreed to slower repayments and will consider increasing its
orders, Reuters reported. 
    A concentrated market for high-end organic light emitting
displays, used by all but one iPhone model last year, explains
the interest from Apple, which often invests in suppliers but
rarely bails them out. Samsung Electronics  005930.KS  dominates
the field, selling 80% of OLED screens, according to IHS Markit
data. Helping stabilise Japan Display should at least prevent an
uncomfortable dependence on screens from the South Korean giant,
whose handsets also compete with the iPhone. 
    More money is needed, though, and Apple’s endorsement should
help. Japan Display shares jumped as much as 32% late last week
when the Asahi newspaper first reported the Cupertino,
California-based company’s involvement. That suggests investors
are betting a turnaround is back on track, proving that a solid
protection plan can go a long way.
    On Twitter https://twitter.com/mak_robyn
    
    CONTEXT NEWS
    - Japan Display said on June 28 that Chinese investment firm
Harvest Tech Investment Management had agreed to invest 52.2
billion yen ($485 million) in the company using convertible
bonds with stock acquisition rights, of which approximately $100
million would come from a customer. The customer is Apple,
Reuters reported, citing an unnamed source.
    - Separately, Japan Display said that Hong Kong-based
activist investor Oasis Management would invest $150 million to
$180 million, depending on certain conditions including no major
cuts in orders from a main customer.
    - The total investment from Harvest, Apple and Oasis will
fall short of the 80 billion yen Japan Display says it needs.
The company said it is in talks with other potential investors
to join the deal.
    - Japan Display had been pursuing a bailout deal with a
Chinese-Taiwanese consortium, but Taiwanese screen maker TPK
Holding and financial firm CGL Group dropped out of the process
earlier in June.     
    - For previous columns by the author, Reuters customers can
click on  MAK/   
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Japan Display to receive $100 mln investment from Apple as part
of bailout deal     urn:newsml:reuters.com:*:nL4N23Y1DF
Japan Display statement    https://ssl4.eir-parts.net/doc/6740/tdnet/1726504/00.pdf
BREAKINGVIEWS-Japan Display gives rescuers more bargaining chips
    urn:newsml:reuters.com:*:nL4N22R1ZR
BREAKINGVIEWS-Apple supplier’s rescue leaves Japan red-faced   
 urn:newsml:reuters.com:*:nL3N21X0AC
BREAKINGVIEWS-Cracks at Apple appear in Asia's supply chains   
 urn:newsml:reuters.com:*:nL3N1ZN26E
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Jeffrey Goldfarb and Bob Cervi)
 ((robyn.mak@thomsonreuters.com; Reuters Messaging:
robyn.mak.thomsonreuters.com@reuters.net))