Apple Screen Supplier Looks for a Life Beyond Smartphones

(Bloomberg) -- Japan Display Inc., a struggling supplier of screens for Apple Inc.’s iPhone, needs another cash cow amid sputtering smartphone demand. The company thinks it’s found the answer in sensors.

JDI has shifted about a third of its research staff to sensor development, more than 100 people, from just a handful a year ago, Chief Technology Officer Kazutaka Nagaoka said in an interview in Tokyo. The company is betting on demand from the health-care industry for pressure and proximity sensors, Nagaoka said. They could be used in a wrist-worn health tracker, or even be made into a sheet large enough to cover a single bed.

Japan Display’s stock has dropped almost 80 percent this year to a record low on pessimism over demand for Apple’s new iPhone models and concern that long-term growth may be harder to come by in a maturing market. Apple, its biggest customer, is also shifting to next-generation organic light-emitting diode displays, which the Japanese company doesn’t produce in mass quantities.

“Given how fierce the competition is becoming in displays, we need to find something that generates equal value, or we won’t survive,” Nagaoka said. Making sensors a major earner for the company “is a must,” he said.

When will this help the bottom line?

As soon as next fiscal year, Nagaoka said. The company is already in talks with potential customers and he anticipates annual revenues in the business will reach into tens of billions of yen, about $100 million or more.

JDI in November cut its sales forecast for the current period ending March, citing changes in demand from an unidentified customer. Revenue will climb 5 to 15 percent, down from an earlier guidance for 10 to 20 percent growth. The company recorded a 247 billion yen ($2.2 billion) net loss last fiscal year on 717.5 billion yen in sales.

JDI plans to manufacture the sensors in its own factories, but would also consider licensing the technology to partners, Nagaoka said.

Why does a display company have sensor knowhow?

A liquid crystal display is a glass sandwich, which among other things, contains a layer of so-called thin-film transistors, which apply electric voltage to control illumination of individual pixels. A similar structure can be used to read changes in voltage at the surface.

JDI was created in 2012 in a merger of the troubled screen-making units of Toshiba Corp., Sony Corp. and Hitachi Ltd., each bringing a piece of the technology needed to make sensors. Toshiba, which invented NAND flash memory, had expertise in transistors; plasma TV pioneer Hitachi, the ability to apply the devices evenly on a substrate; Sony contributed the knowhow in integrated circuits, Nagaoka said.

The technology was largely unused until about two years ago, when JDI began research into sensors. The company can now make devices with 1,000 times the sensitivity of a smartphone touch screen, he said.

What about competition from existing sensor makers?

Most sensor manufacturers come from the semiconductor industry and focus on making tiny, discrete devices. They build their sensors on silicon wafers measuring typically 300 mm (12 inches) in diameter, which limits the size of the sensor. JDI’s sixth-generation display factory can be used to potentially make sensing sheets as big as 1.5 meters by 1.8 meters, Nagaoka said.

“That’s enough to wrap around a grown man,” he said. “With those kinds of dimensions we are potentially talking about something that approaches artificial skin.”

To contact the reporters on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net;Yuki Furukawa in Tokyo at yfurukawa13@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Edwin Chan

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