One of the reasons I enjoy following Apple (AAPL +0.56%) supplier stocks is that such companies, particularly those with high exposure to Apple, can often provide valuable insights into Apple's business as well as Apple's impact on the overall smartphone industry.
Japan Display is one of those companies. It's a key manufacturer of liquid crystal displays that are used in Apple's iPhones and derived more than 80% of its revenue last quarter from mobile display sales. In going over Japan Display's earnings press release and accompanying presentation, I saw something that investors in Apple, as well as general smartphone industry watchers, might find interesting.
Image source: Apple.
China-based smartphone makers are being cautious
Apple's iPhone is losing ground in the Greater China region. The company's Greater China revenue dropped 17% year over year in its fiscal 2016, during the iPhone 6s cycle, and over the first nine months of fiscal year 2017 -- the iPhone 7 cycle -- sales have dropped by 12%. Considering the smartphone market in China is growing, Apple must be losing market share in the region.
Apple's upcoming iPhone models -- the premium OLED iPhone 8, as well as the LCD-based iPhone 7s and iPhone 7s Plus, or whatever Apple ultimately markets them as -- apparently has China-based smartphone vendors playing things a bit cautiously.
"Though shipment of smartphones is generally strong, demand for panels is weak from Chinese smartphone makers due to their wait-and-see stance for the upcoming launch of new global brand smartphones," Japan Display said in an Aug. 9 investor presentation.
To be fair, Japan Display didn't blame its relatively weak display panel shipments in China entirely on what it calls the "wait-and-see stance" the Chinese smartphone vendors are taking. Indeed, the display maker said in its earnings press release that a broader industry shift to OLED display technology, as well as the "growing production capacity of China's display makers," is leading the company to face "an increasingly difficult competitive environment." Japan Display provides only LCDs.
At any rate, it's notable that China-based smartphone vendors see Apple's upcoming iPhone models as a real threat.
Can Apple get its mojo back in China?
This upcoming product cycle should be particularly interesting for Apple. I have long believed that a large part of Apple's problems in the Greater China region is that it simply hasn't delivered products that stand out in the region. Many of the local Chinese smartphone vendors put out flashy devices that often incorporate a lot of whiz-bang specifications and technologies for prices that are often below what Apple charges for its devices.
That's not to say Apple doesn't innovate in key user experience areas beyond what can be represented in a specification sheet, but let's face it: Apple has offered customers three generations of iPhones that share largely the same shape, look, and feel, while many of the Chinese vendors have done more exciting things with their own designs.
The new iPhone models, particularly the premium OLED model, should rectify Apple's product problem. It'll be worth seeing if the new phones ultimately allow Apple's Greater China business to return to growth, potentially at the expense of its competitors based in the region.
