Apple Inc is in negotiations with Sharp Corp to secure organic LED displays for the iPhone maker’s next-generation of devices, a person familiar with the matter said.
Any OLED supply agreement would depend on the Osaka-based company’s output capacity, said the person, who asked not to be identified because talks aren’t public. The discussions stem from Apple’s desire to increase the number of suppliers for OLED screens, according to the person.
Earlier Friday, Sharp announced it will invest ¥57.4bn ($566mn) for the development of OLED production facilities, with the goal of starting output by June 2018. The funds will be used for equipment in Sharp’s factories in Mie and Osaka, and to deliver sample products to customers, the company said in a statement.
“Apple has unofficially or as a nod encouraged Sharp to go into it,” said Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners Inc, in a phone interview. “Apple’s general strategy is to increase the competition on the supply side, and dilute the risk exposure to one company.”
Sharp spokesman Toyodo Uemura declined to comment on specific customers. An Apple spokesperson in Japan didn’t immediately respond to a request for comment.
Sharp’s capital investment in OLED is part of ¥200bn that the manufacturer had already committed to OLED technology, part of a strategic plan it adopted with new owner Foxconn Technology Group. Next-generation screens based on OLED, or organic light-emitting diode, technology promise more vivid images and less battery drain. Friday’s announced investment will be for smartphone displays, a representative of Sharp said without identifying specific customers.
“This investment is in response to what Apple is doing,” said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. “Production isn’t likely to begin until the second half of 2018, so the impact to profit won’t be until after that.”
Sharp shares rose as much as 2.2% after the announcement, but closed unchanged Friday in Tokyo. The stock has climbed 8% this year, compared with the broader market’s 15% decline. Apple accounts for about 27% of Sharp’s revenue, according to Bloomberg’s supply chain analysis.
Earlier this year, the Japanese company agreed to accept a rescue package from Foxconn Technology Group, ending a takeover battle that spanned four years. Last month, the company said its liabilities no longer exceed assets after receiving a ¥289bn
 infusion.