UPDATE 2-Japan Display posts wider than expected loss as market lead in doubt

Thu Aug 7, 2014 6:37am EDT

* Strong demand from China for high-resolution screens

* Falling orders from domestic handset makers

* Competition with Sharp heats up as both pursue Chinese makers (Adds quotes from CEO, details on company strategy)

By Sophie Knight

TOKYO, Aug 7 (Reuters) - Japan Display Inc posted a deeper quarterly operating loss than expected amid investor concerns that the world's biggest maker of LCD panels for smartphones and tablets is struggling to maintain its competitive edge against its rivals.

The Apple Inc supplier said on Thursday that an 11 percent drop in prices for its panels in the April-June quarter compared to a year earlier and an 8.5 billion yen one-off loss on a re-evaluation of its inventory led it to an operating loss of 12.7 billion yen ($124.2 million) for the quarter.

That lagged analyst expectations of a 5.9 billion yen loss, the average of five estimates according to Thomson Reuters Starmine. But Chief Financial Officer Yasuhiro Nishi said it was in line with company expectations of a 13 billion yen loss after the company said in May it was expecting a loss of around 10 billion yen.

Japan Display has seen its shares skid 37 percent since the firm's initial public offering in March on doubts it can maintain its throne at the top of the LCD display panel market against competitors like Sharp Corp and LG Display Co Ltd.

Analysts say Sharp and Japan Display's strategies are essentially the same: capture demand for premium, high-resolution panels from rapidly rising Chinese handset makers. And some say Sharp is posing a greater threat than before.

Last week, Sharp said it expected revenue from Chinese handset makers to expand fivefold in the first half of the business year to Sept. 30 to 100 billion yen and anticipates double that for the full year as it expands production of full high-definition (HD) panels.

Having started from a higher base, Japan Display said revenue from Chinese handset makers was 2.4 times higher than the same quarter last year, a slightly slower pace than the 2.7-fold increase to 180 billion yen it expects in the current year to March 31.

"Demand from Chinese makers is strong, but global shipments haven't really progressed. Domestic orders have fallen especially," Chief Executive Shuichi Otsuka said at a briefing after the earnings were released.

Sony Corp, which sources say orders panels from Japan Display, cut its sales target for its Xperia smartphone by 14 percent last week. Many other Japanese firms have quit making smartphones due to foreign competition.

Analysts are also concerned that Japan Display is becoming increasingly reliant on Apple for sales, with UBS Securities predicting the iPhone maker will contribute 34 percent of Japan Display's total revenue this year, up from 31 percent in the year ended March 31.

Sources say Japan Display is currently producing two different-sized panels for Apple's iPhone 6, which is anticipated to be launched in September.

The company said it expected to pull into the black in the current quarter and held its full-year forecast of a 40 billion yen operating profit, saying demand from China remained strong and that falling prices were bottoming out.

Shares in Japan Display, formed from the LCD units of Sony Corp, Hitachi Ltd and Toshiba Corp, closed 1.4 percent higher at 567 yen before the results were released.

($1 = 102.2600 Japanese yen) (Additional reporting by Reiji Murai; Editing by Matt Driskill and Ryan Woo)

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