IPhone Supplier's Share Spike Is a Bad Sign

(Bloomberg Opinion) -- You know the situation must be dire if a company's shares spike after it confirms plans to dilute shareholders.

Japan Display Inc., a maker of screens for the iPhone and other gadgets, jumped as much as 14 percent on Monday. The catalyst was a brief statement from the company earlier in the day that said it was aiming to reach agreements this week to raise more than 110 billion yen ($990 million), including up to 80 billion yen from external parties through the issue of stocks and bonds.

That the company's market value is only 66 billion yen (it was four times higher back in 2015) shows the scale of this rescue refinancing. While investors may welcome this, it still doesn't solve the fundamental problems at JDI, which has suffered five years of losses.

The shares had already spiked in December after reports that a group of Chinese companies were in talks to buy as much as one-third of the digital display maker. The Japanese media reported over the weekend that the investment by a Taiwan-China consortium could close this week, prompting the statement from JDI and the relief rally from investors.

The details still need polishing, but it's certain that existing shareholders will have their stakes diluted. They don't mind, though, because that outcome seems better than death.

Unfortunately, we're still pretty much in the dark about what JDI – which was created back in 2012 by combining the small and mid-size LCD operations of Toshiba Corp., Hitachi Ltd. and Sony Corp. – plans to do once it has the new financing in place. I argued back in February that it needs a change of leadership as much as it needs money. The company is struggling with oversupply, slowing demand for iPhones, macroeconomic headwinds and trailing technology after missing the boat on OLED – the technology that Apple Inc. is using today on its smartphones.

If a looming dilution consoles investors, maybe that tells you they've got nothing else to hope for.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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