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Sharp’s Acquisition JDI D3 Fab (Hakusan Gen 6 LTPS)
July 05, 2020
 
Sharp’s management continues looking at buying the JDI D3 fab, but is waiting for  Apple to confirm its iPhone strategy: All OLED vs. prolonging LCD life (spring ‘22 models) due to panel costs, tech gap in SDC vs. competitors. 
  • Current LCD suppliers: JDI (J1:20k), SH (K1:22k), LGD (AP3:20k) but production by LGD to be terminated in September and could cause capacity shortage. 
  • Apple to collect ¥87.9b (Feb) payment to JDI. Production/sales growth with D3 is fastest but JDI struggling with finance/personnel. 
  • Apple supporting JDI: Bought $200m D3 plant (book value ¥0 on impairments). Profit booking+prepayment offset (down ¥66.4b) for JDI. 
  • Importance of JDI: IPS/LTPS/LTPO/cell technology, superior developers. Supplies OLEDs for Apple Watch. Prepayment collection cancels out JDI survival. 
JDI’s position; Apple is biggest and most important client but creates various burdens such as, low MP ratio, swaying demand, big prepayment returns. Apple Watch module expansion costly. 
  • Autos: Sales over ¥100b, high tech, but do not anticipate near-term profit expansion due to excessive competition. 
  • New fields: NB, VR, BtoB, etc. Many products but investments needed–  Potential business split: Focus on either Apple LCDs, Apple OLEDs, autos, or new fields. Each business may collaborate with other companies individually. 
Sharp’s position: Benefit/risks from acquiring D3 
  • D3’s appeal: JDI’s plant with tech(25K/month, another 25K for future is possible). ¥170b investment reduced to ¥55b book value (land/buildings/utility) due to impairment. Apple owns Facilities(¥22b ).
  • K1 limitations: Toward free of Apple. Close G4/G4.5 plants & shift autos to K1. Needs D3 for Apple products. Prepayment: Apple wants to transfer JDI prepayment to SH. SH will fund acquisition, operate plant, and make repayment. 
  • If JDI is sold below book value, it will incur losses. Sharps book value does not look appealing. 
  • Needs Apple’s support to
    • Guarantee iPhone demand (volume/value) for sufficient profit even after repayment; 
    • Decide on introduction of new LCD iPhone models;
    • Mediation JDI asset sales (discount on book value) 
    • Purchase AAPL’s production facility only and operation of D3 with JDI;
    • Cooperate on future development of new technologies such as OLED and μLED. From: Mizuho Securities
 

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