By Makiko Yamazaki
TOKYO (Reuters) - Japan Display Inc <6740.T> said its biggest investor, the state-backed Innovation Network Corp of Japan (INCJ), has pledged full financial support to the Apple Inc <AAPL.O> supplier as it seeks to replenish capital used up as smartphone sales slowed.
The ailing display maker hopes to draw on what is effectively a government fund to weather future market swings, in particular lapses in demand for iPhones from Apple, whose products account for more than half of Japan Display's sales.
The firm earlier this year took out short-term loans from lenders to preserve liquidity as losses widened. But it also sought long-term support from INCJ to stabilise its financial base and invest in advanced technology where it lags rivals.
"We don't have any financing concerns at the moment, but need to procure sizable funds because another big wave (of market challenges) could put us in serious trouble," Chief Executive Mitsuru Homma said at an earnings briefing.
Homma declined to comment on whether INCJ support would be in the form of loans or debt guarantees, but hinted at a low possibility of issuing shares as Japan Display "hopes to limit damage to existing shareholders."
On Tuesday, the maker of panels for smartphones, tablets and other electronic devices reported a net loss of 11.8 billion yen ($115.25 million) for April-June, wider than the 461 million yen loss of a year prior but matching a forecast released last week.
The manufacturer said earnings were brought down by a 15 percent fall in iPhone sales during the quarter, as well as falling panel prices and a stronger yen.
At the briefing, Homma said Japan Display may ask smartphone makers to shoulder some investment in organic light-emitting diode (OLED) displays, an advanced technology in which it trails South Korean rivals.
The company plans to start production by September 2018, though Apple is widely expected to begin adopting OLED for its iPhones as early as next year.
"OLED panels cost about twice as much to produce (than current liquid crystal displays)," Homma said. "I believe there are a limited number of clients who can develop products that sell at prices high enough to absorb that cost."
Japan Display was formed in 2012 in a government-backed deal merging the money-losing display units of Sony Corp <6758.T>, Toshiba Corp <6502.T> and Hitachi Ltd <6501.T>.
Earlier this year, INCJ tried to broker a merger with rival Sharp Corp <6753.T>, which was ultimately bought by Taiwan's Hon Hai Precision Industry Co Ltd <2317.TW>.
($1 = 102.3900 yen)
(Reporting by Makiko Yamazaki; Editing by Christopher Cushing)