Japan-based Sharp Corp is failing to keep pace when it comes to manufacturing screens for Apple’s latest iPhone just weeks prior to the much-reported Sept. 12 launch event.

Reuters, which cited an unidentified source, reported today that Sharp is floundering due to high costs eating into its iPhone screen margins. The struggle is apparently raising questions about whether Apple will need to offer “financial incentives” to encourage speedier production:

The source, who is familiar with Sharp’s production operations, did not give an indication of how far behind the output had fallen. The source spoke on condition that he not be identified because of the sensitive nature of the disclosure.

Sharp President Takashi Okuda said on August 2 that his company would begin mass production and shipments from its Kameyama LCD plant in central Japan this month. The facility is widely known to make screens for Apple, but Sharp has declined to acknowledge that Apple is a customer.

Sharp’s rumored delay comes as it also deals “with a cash crunch amid approaching debt repayment deadlines,” The Wall Street Journal reported earlier this morning. The company holds “$15 billion in interest-bearing debt…Sharp has forecast a net loss of 250 billion yen ($3.18 billion) for this fiscal year through March, as its core businesses remain unprofitable.”

Apple, which also procures iPhone screens from Japan Display, LG Display, etc., concurrently faces increased expectations, as many have reported the next-generation iPhone will hit stores in late September.

The new iPhone will reportedly sport a thinner screen due to “in-cell panels,” which involve embedding touch sensors into LCD to eliminate the touchscreen layer, and Reuters sources additionally noted the high-tech displays are 30 percent bigger than the previous models:

Sources earlier told Reuters that the panels will extend 4 inches corner to corner — 30 percent bigger than current iPhones.

Sharp’s struggle to keep up has led to more speculation as to whether the new iPhone, with its thinner and bigger display, will be harder to come by. Meanwhile, Sharp’s shares plummetted 13 percent Friday due to a planned investment from Taiwan-based Hon Hai.

According to The Wall Street Journal:

Hon Hai, also known as Foxconn, 2038.HK -1.21% agreed in March to take a 9.9% stake in the troubled Japanese company, but Sharp’s stock has fallen steeply since then, prompting the Taiwanese firm to renegotiate the terms of the deal. Hon Hai Chairman Terry Gou was in Japan this week, but the two companies weren’t able to reach an agreement.

In related news, as reports circulate regarding Sharp’s financial and production woes, Bloomberg revealed today that Apple will use screens from AU Optronics and LG Display for the “iPad mini” due to be released in time for the holidays.

Bloomberg, which cited four people familiar with the plans, also said TPK Holding and Yeh Cheng Technology, a subsidiary of Foxconn, would supply “the lamination coating for the device that will measure 7.85 inches diagonally.”

Despite the cloud of doubt looming over Sharp in terms of iPhone screen production, the company is certainly turning heads at its IFA booth in Berlin. It is currently exhibiting several IGZO displays, which are based on the semiconductor material indium gallium zinc oxide, with one 6.1-inch prototype boasting a 2,560-by-1, 600 pixel resolution. That is a 50 percent increase on the 326ppi screen found in the iPhone 4S and roughly double of the new iPad.

We are live in Berlin and hope to have a few images of Sharp’s IGZO prototypes for later today—so stay tuned!

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