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JDI Cuts Executives, Staff and Capacity to Entice Suwa’ Investment
June 24, 2019 Japan Display (JDI) has been hit by a double whammy by first missing the emergence of OLEDs in the smartphone market and second now in the decline in smartphone shipments. JDI failed to recognize the strength of OLEDs in the premium and high end market and is unable to compete with the Chinese for the remaining LCD market. The company has been trying to recapitalize and announced a series of financial plans, but the losses continue and JDI announced another restructuring plan “…to downsize the mobile business, which has no prospect for a significant recovery in demand in the future.” The company will temporarily suspend operations of its Gen 6 LTPS LCD plant in Ishikawa and the module assembly functions in Mobara, although the Ishikawa closing is subject to review in September, with the option to reopen or close permanently. |
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The company is offering early retirement to 4,635 employees, with expectations that ~1,200 will take the offer, costing the company 9b¥ ($83m US), but saving ~20b¥ ($184.6m) annually and reducing salaries of executives by 60% for the company President, 50% for Senior Managing Directors, 30% - 40% for Managers, 15% for VPs, with all seeing a 25% to 50% reduction in bonuses (bonuses???). The current CEO/President is resigning to be replaced by the current CFO, and an outside director now become Chairman. Pressure from their new potential investor Suwa was likely the instigator behind the radical restructuring and was likely a contingency to the funding itself. JDI will now focus on automotive and non-mobile products, although the company’s was recently included on Apple’s supplier list for the Apple Watch 5. JDI will still operate J1, a 50,000 sheet/month Gen 6 LCD fab, two Gen 4.5 LCD lines (105,000 sheets/month total) and a Gen 3.5, 27,000 sheet/month line. The Gen 6 line is likely the source of JDI’s automotive products, and watch displays, or similar products could be produced on either of the smaller format fabs, so the company can stay in business at what could be a more profitable level. Apple pre-paid JDI ~$1b to build capacity but has since switched from LCDs to OLEDs resulting in a little drawdown of the pre-payments against product deliveries. While selling watch displays to Apple will certainly generate sales to reduce that pre-payment, the lower ASP and shipment volume will push out the repayment beyond the original plan.
The company expects to take a 40b¥ to 50b¥ ($370m to $461m US) asset impairment write-down for the Ishikawa plant, but mentioned that an additional 10b¥ to 20b¥ ($92.3m to $184.6m US) extraordinary loss may also be recorded, relating to plant operations and subsidy repayments, depending on ‘future customer behavior’, which could indicate a plant re-opening is contingent on Apple’s upcoming orders and that if it is not reopened, JDI will have to convert the Apple pre-payment to some type of debt.
The consortium, Suwa Investment Holding, which was formed by TPK, China's Harvest Tech Investment Management, and two investment firms owned by Taiwan's Fubon Financial Holding, struck a deal with JDI in early April planning to throw a lifeline of over JPY62 billion (US$554 million) into the Japan-based display company.
The original plan also called for TPK to invest US$230 million to take a 41.8% stake in the consortium, which will then pursue to acquire a 49.82% share in JDI through the purchases of new shares and convertible bonds issued by JDI. TPK said it has cancelled its commitment to invest US$230 million into Suwa as business environments have changed, without elaborating. Suwa’s funding supported by interim financing from the INCJ, and any other potential funding opportunities will likely be tied to the performance of the company once the current restructuring is put into place, but the results could take a quarter or so to propagate, which begs the question as to the ‘new’ timing of the funding, or whether it is still in place. JDI did mention, ‘achieving a synergy through a collaboration with Suwa Consortium’ but gave no further details about timing or the potential value of such an investment.
Japan Display announced a new lineup of investors, with TPKwithdrawing its potential $230m investment, the addition of $150m from Oasis Management, the potential addition of ‘Fund X’, with some unknown investment amount, and a commitment from Harvest Capital that would make up any shortfall from other parties. JDI stated that the maximum amount they will receive under the plan (assuming no additional changes) would be 80b¥ ($737m US), but did not say what the minimum could be, nor did it specify a commitment amount or date from ‘Fund X. Without ‘Fund X’, Harvest Capital would be investing up to $457m or 62% of the maximum amount. There have been rumors that Sharp has an interest in a participating investment, but a comment from Sharp Chairman and President Dai Zhengwu stated, “We have not received any contact with JDI, but we are open-minded. If the other party makes a request, we will consider it.”
While JDI does have a legal commitment to its shareholders concerning the refinancing and restructuring, the almost daily notifications do little to assuage the confusion surrounding JDI’ survivability and support from outside sources. JDI has lost funding from TCL, and while a verbal commitment from Harvest has been made, technically the company has not received commitment notification from any outside funding sources. Hopefully the funding will be fully resolved by the end of this month, but there is little to prevent it from continuing to drag on.
Table 1: Status of JDI Potential Investors
The company expects to take a 40b¥ to 50b¥ ($370m to $461m US) asset impairment write-down for the Ishikawa plant, but mentioned that an additional 10b¥ to 20b¥ ($92.3m to $184.6m US) extraordinary loss may also be recorded, relating to plant operations and subsidy repayments, depending on ‘future customer behavior’, which could indicate a plant re-opening is contingent on Apple’s upcoming orders and that if it is not reopened, JDI will have to convert the Apple pre-payment to some type of debt.
The consortium, Suwa Investment Holding, which was formed by TPK, China's Harvest Tech Investment Management, and two investment firms owned by Taiwan's Fubon Financial Holding, struck a deal with JDI in early April planning to throw a lifeline of over JPY62 billion (US$554 million) into the Japan-based display company.
The original plan also called for TPK to invest US$230 million to take a 41.8% stake in the consortium, which will then pursue to acquire a 49.82% share in JDI through the purchases of new shares and convertible bonds issued by JDI. TPK said it has cancelled its commitment to invest US$230 million into Suwa as business environments have changed, without elaborating. Suwa’s funding supported by interim financing from the INCJ, and any other potential funding opportunities will likely be tied to the performance of the company once the current restructuring is put into place, but the results could take a quarter or so to propagate, which begs the question as to the ‘new’ timing of the funding, or whether it is still in place. JDI did mention, ‘achieving a synergy through a collaboration with Suwa Consortium’ but gave no further details about timing or the potential value of such an investment.
Japan Display announced a new lineup of investors, with TPKwithdrawing its potential $230m investment, the addition of $150m from Oasis Management, the potential addition of ‘Fund X’, with some unknown investment amount, and a commitment from Harvest Capital that would make up any shortfall from other parties. JDI stated that the maximum amount they will receive under the plan (assuming no additional changes) would be 80b¥ ($737m US), but did not say what the minimum could be, nor did it specify a commitment amount or date from ‘Fund X. Without ‘Fund X’, Harvest Capital would be investing up to $457m or 62% of the maximum amount. There have been rumors that Sharp has an interest in a participating investment, but a comment from Sharp Chairman and President Dai Zhengwu stated, “We have not received any contact with JDI, but we are open-minded. If the other party makes a request, we will consider it.”
While JDI does have a legal commitment to its shareholders concerning the refinancing and restructuring, the almost daily notifications do little to assuage the confusion surrounding JDI’ survivability and support from outside sources. JDI has lost funding from TCL, and while a verbal commitment from Harvest has been made, technically the company has not received commitment notification from any outside funding sources. Hopefully the funding will be fully resolved by the end of this month, but there is little to prevent it from continuing to drag on.
Table 1: Status of JDI Potential Investors
Source: Company