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Troubled Apple supplier Japan Display – which makes the LCD screens used in the base model iPhone 11 – has been losing money for the past five years. However, fallout from a $5M fraud means that the true position may be even worse than feared.

The company said that in the light of a statement by a former senior executive who embezzled more than $5M from the company, it will need to review its past earnings to determine whether or not they present a true picture of the company’s finances…

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Reuters reports that the company made the announcement yesterday.

Japan Display Inc said on Wednesday it would review its past earnings after a former accounting executive notified the company of a past accounting fraud which he said was directed by former top management.

The executive, who was fired last year for embezzling about $5.3 million over four years since 2014, made the notification on Tuesday, Japan Display said in a statement […]

The company has already launched an internal investigation with its auditors and will announce results accordingly, the statement said. The potential investors have agreed to continue talks over the bailout, it added.

At this point, it may just be the embezzler trying to cause trouble for the company, but only a detailed audit will reveal the truth.

It’s just the latest thing to go wrong for Japan Display, the saga of which we recently recapped.

The story begins back in 2016. Japan Display found its LCD orders falling dramatically as smartphone manufacturers began the shift to OLED. The company didn’t have the capital needed to build OLED production lines, which are expensive to create, so needed a $636 million government bailout to keep the company afloat and let it finally invest in OLED.

Apple took a leisurely journey toward OLED screens, starting with the Apple Watch in 2015, followed by the Touch Bar on the MacBook Pro the following year, and then its first OLED iPhone, the iPhone X in 2017.

The iPhone maker was keen to diversify its OLED supply chain away from Samsung as its sole supplier, but the market was growing increasingly competitive, with Sharp, LG, and BOE all hoping to win Apple business. Japan Display, in the meantime, was still struggling to raise the capital needed for large-scale OLED screen production.

A second bailout was announced, initially for $723 million, though with a wide variety of numbers subsequently bandied about. Things looked good for a while as that plan was “confirmed,” and the company won orders for Apple Watch screens. Apple agreed to assist the company by waiting for repayment of a $1.5 billion loan made to the company years earlier to fund LCD production.

However, things started unravelling when a major backer exited the rescue plan. Apple agreed to chip in $100 million to help balance the books, but OLED iPhone displays still looked to be at least two years away.

A second backer then withdrew last month — this time, the one leading the consortium.

Currently, Apple is reported to be leading the rescue, doubling its planned investment to $200M, making it the largest contributor. The impact of the current uncertainty is as yet unknown.

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