A Japan firm’s move from steel plates to fancy phone screens

It calls itself a steelmaker, but don’t be misled by the name. Japan Steel Works Ltd. is no longer just the old-world metals firm that it started life as more than a century ago. These days, the Tokyo-based company is more a technology play, supplying machinery to the makers of everything from high-end phone screens to lithium-ion batteries. So much so, in fact, that the steel and energy products business makes up less than a quarter of sales.

Now, with Apple Inc. selling its first phone boasting an organic light-emitting diode display, a sharp, vibrant screen that uses less energy, Japan Steel Works is counting on that being good for its own bottom line. While the iPhone X display supplier doesn’t use the company’s annealing machines, which apply a type of laser treatment to create a key layer of OLED screens, Japan Steel Works says Apple’s move will help expand the entire OLED industry.

“If this takes off, demand is going to swell,” said Hidehiko Ohtsu, the head of planning for Japan Steel Works’ laser-equipment business. “We’ll boost capacity as needed.”

JSW is one of a surprising number of Japanese companies that play key roles in the OLED business, hidden from sight as suppliers to suppliers, but possessing niche technologies. And while Japanese firms are sometimes criticized for diversifying away from their core strengths, Japan Steel Works is an example of that approach paying off.

Apple’s shift toward OLED displays, a technology that Chief Executive Officer Tim Cook once disregarded, has sparked billions of dollars of investments in the display industry by those betting the new screen technology will fly with Apple on board. While Samsung Electronics Co. has used OLED screens for its phones for almost a decade, other smartphone makers have largely relied on liquid crystal displays.

While LCDs rely on a backlight panel, OLED pixels can glow on their own, resulting in thinner displays, better battery life and improved contrast. OLED screens can also be made on flexible plastic, which allows for a better variety of shapes and applications.

Chinese panel makers, which have started aggressively developing OLED displays, have ordered many of Japan Steel Works’ laser annealing machines, Ohtsu said, vying to win a chunk of what UBI Research Inc. estimates will be a USD57 billion market by 2020. JSW, which had been generating as much as 10 billion yen ($88 million) in annual sales from the machines, saw revenue for the business more than double in the year ended March.

“We’re the top player in what we do,” said Ohtsu. The steelmaker says it has about a 70 percent market share for laser-equipped annealing machines for LCD display manufacturing, thanks to its early foray into the machinery. It sold machinery to Samsung Display Co., the only OLED screen supplier for the iPhone X, and LG Display Co., before the South Korean companies started making it themselves.

JSW will benefit as Apple’s move into OLED screens prompts other phone makers to adopt the technology, said Thanh Ha Pham, a Tokyo-based analyst at Jefferies Group LLC who rates Japan Steel Works a buy. “When that happens, obviously a lot of the orders will come to Japan Steel Works.”

In 1995, the Japanese machinery maker was first in the world to start a process called excimer laser annealing, which helped accelerate market adoption of high-performance, cost-efficient LCDs. Demand for small LCDs that initially targeted the digital-camera market took off with the massive growth in mobile phones in the late 1990s.

With the advent of smartphones, demand only got greater. But unlike companies such as Japan Display Inc. that fell behind amid the transition to OLED, JSW hasn’t been affected, because its laser machines can easily be used for making the new screens. Bloomberg