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Apple’s Search For Better iPhone Screens Leads To Japan’s Rice Fields

Apple Inc’s quest to adopt advanced displays for its next generation iPhone hinges on a single supplier in the Japanese country side.

Standard Tokki corp, surrounded by rice fields in the city of Mitsuke in Niigata prefecture, has a near monopoly on the machines capable of making screens with organic light emitting diodes, which enable sharp, vibrant displays that use less energy.

A unit of canon Inc. the company of 343 employees has spent more than two decades perfecting the manufacturing used by OLED screen makers.

But there’s a problem: canon Tokki has a growing backlog even after doubling output in 2016. The potential production bottleneck is raising questions over Apple’s ability to feature OLED displays in next year’s iphones, and whether the Cupertino, California-based company will be able to line up additional suppliers. The current wait for a machine, which can cost more than 10 billion yen each, is about two years.

Apple’s search for better iPhone screens leads to Japan’s rice fields

Apple’s search for better iPhone screens leads to Japan’s rice fields

“We are doing all we can to increase output and make that wait shorter”, said chief executive officer Teruhisa Tsugami, adding that demands from display makers, including Samsung display co, LG Display co and sharp corp will remain strong for the next three years.

Apple has been making preparations to outfit its next iPhone with OLED displays, the latest chapter in its now-familiar strategy of tempting people to upgrade by baking in new features. Over the years the improvements have included sharper screens, fingerprint identification, pressure-sensitive displays and custom-designed chips.

That push has also put a highlight on suppliers of previously obscure technologies, testing their capacity to satisfy demand that drives sales of more than 200 million iphones each year.

A couple of years ago, Apple sought to use strong sapphire glass for iphones, only to abandon the effort when a manufacturer couldn’t deliver enough of acceptable quality and went bankrupt. The scratch resistant material is now featured on the Apple watch.

Now OLED is the big goal. The technology has been include on top-end Smartphone’s for years, including almost almost all of Samsung electronics Co’s high end phones.

While LCD’s rely on a back-lights 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, allowing for a wider variety of shapes and applications.

OLEDs aren’t just for flat areas, but can be used on edges, so Smartphone makers will challenge themselves by building displays with new shapes, Tsugami said. These individuality in OLED will give it an advantage.

The machines that build OLED screens are almost all made by Canon Tokki, which was founded by the current CEO’s father in 1967.

The company doesn’t disclose production details and earnings figures. Its current annual output capacity is less than 10 units, according to two people familiar with the matter, who asked not to be identified because the information is confidential.

To call canon Tokki’s product a machine is something of an understatement. Each one is a vacuum production line 100 meters long.

Glass panels, roughly the size of a large TV screen, are propelled by robotic arms through several chambers.

Red, green and blue pixels are deposited on the surface by evaporating organic materials. You don’t make it on assembly line, but rather custom craft it for your clients like a high performance super-car, Alberto Moel, a technology analyst at suddenly everyone wants your car.

One of the challenges is in aligning the glass pane with a fine metal mesh that serves as a stencil for the pixels. Canon Tokki, which has been making OLED machines since 1993, has a patented mechanism that uses camera tracking to achieve a margin of error that’s less than the size of a human red-blood cell.

Such precision is critical for display makers because it improves yield. Even for LCD’s, which dominate in flat-panel TVs and are used in iPhone, a fraction of output ends up being defective, and discarded. Achieving acceptable yields is even harder with OLEDs.

Canon Tokki’s years of experience working with display makers give it a head-start against rivals like Ulvac Inc. and Tokyo Electron Ltd, according to Tsugami. The market for small- and medium-sized OLED panels will be worth $18.6 billion in 2018, more than that for the liquid-crystal counterparts for the first time, according to IHS Mark it.

“This is a once-in-a-lifetime opportunity for Tokki and they will have the market to themselves for the next two to three years,” Moel said.

Apple plans to ship at least one new iPhone with an OLED screen next year, the 10th anniversary of the Smartphone’s debut, people with knowledge of the matter have said.

 While Samsung is on track to be the sole supplier, the South Korean company may not be able to make enough due to low yield rates combined with increasing iPhone demand.

Sharp and Japan Display Inc. are still working on test procedures for OLED screens and have said that they are on track to begin manufacture in 2018.

 This week, Japan Display got a 75 billion yen lifeline from a government-backed fund that will let it invest in OLED production.

Sharp is investing 57.4 billion yen for the development of OLED production facilities, thanks to a release package from Foxconn earlier this year.

Canon Tokki is central to those plans. When Foxconn Chairman Terry Gou addressed employees at Sharp’s display unit after gaining control of the Japanese company earlier this year, he sought to reassure the employees by saying that he had just travelled to Canon Tokki’s headquarters in Niigata to secure an order, according to a former employee present at the meeting.

Other Japanese companies are also likely to play a key role in the OLED supply chain. Dai Nippon Printing Co. and Toppan Printing Co. produce evaporation masks, Nippon Electric Glass Co. and Asahi Glass Co. make the glass substrate, and Idemitsu Kosan Co. produces organic compounds.

This web of manufacturers working on critical elements of a supply chain is a “perfect example of Japan’s submerged manufacturing ecosystem,” Bernstein’s Moel said.

 “It comes up every time there is a quake in Japan and the supply chain is suddenly disrupted. Take vacuum organic deposition. Guess what, it’s some company in Niigata.”   

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