SHCAY Sharp Corporation (PK)

TOKYO—Japan's industry minister said the government would consider divesting its stake in an unprofitable maker of smartphone displays unless the company can demonstrate it is more than just a commodity supplier to Apple Inc.

The comment by Hiroshige Seko, a confidant of Prime Minister Shinzo Abe, comes as Japan Display Inc. is in talks about getting further support from its top shareholder, government-backed fund Innovation Network Corp. of Japan. Japan Display, a top supplier of displays for Apple's iPhones, recorded losses in the past two business years because of tougher competition, a stronger yen and slowing iPhone sales.

Japan has long been seen as reluctant to allow major domestic companies to collapse or be taken over by foreign companies, fearing layoffs and the leakage of technology overseas.

Such thinking is outdated, said Mr. Seko, minister for economy, trade and industry, in a recent interview. "Unlike Japanese leaders in the past, I don't take the simplistic view that we've got to make sure we have such-and-such in Japan or else it's dangerous," he said.

"Instead of clinging to commoditized businesses, I believe Japan should focus on cutting-edge technologies where other countries haven't caught up," he said. "That's when we can make solid money, and then when these become commoditized, it's fine to yield them to other countries."

The government-backed INCJ created Japan Display in 2012 by combining display operations from Sony Corp., Hitachi Ltd. and Toshiba Corp. The company had an initial public offering in 2014 but quickly ran into trouble, and its stock has been trading at around a fifth of its IPO price of ¥ 900 (about $9). INCJ remains Japan Display's top shareholder with a 35.6% stake.

Mr. Seko listed two possible approaches to Japan Display—keeping it under Japanese ownership at all costs, or concluding that the business is commoditizing and doesn't have to be kept in domestic hands.

"Right now, where it's effectively an Apple contractor and their performance automatically gets worse when Apple's performance gets worse—that kind of situation just doesn't work," he said.

However, no decision has been reached on Japan Display's future, he said, and he is open to any arguments about the company's importance in advancing the nation's technology edge.

A Japan Display spokesman said the company has been trying to diversify its business so isn't tied so strongly to volatile smartphone sales. It is developing new technologies that will help the growth of the Japanese economy, he said.

The spokesman said Japan Display was in discussions with INCJ about how to pay for future investments. A spokesman at INCJ, which operates independently under METI oversight, said it would continue to support Japan Display as a major shareholder. Both spokesmen said nothing specific has been decided.

Earlier this year, INCJ made a bid to take over Sharp Corp., the other major Japanese maker of smartphone displays. INCJ envisioned combining Sharp's display business with Japan Display, but it was outbid for Sharp by Taiwan's Foxconn Technology Group.

The two Japanese makers have fallen behind South Korean rivals in technology for organic light-emitting diode, or OLED, screens, which are expected to be used increasingly in smartphones and other devices.

Write to Mitsuru Obe at mitsuru.obe@wsj.com

(END) Dow Jones Newswires

September 20, 2016 23:55 ET (03:55 GMT)

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