Hello, and welcome to JDI's Earnings Video Conference for the First Half of Fiscal 2024. Today, we are joined by our CEO, Scott Callon, our CFO, Hiko Sakaguchi, and our Chief Technology Officer, Yoshiharu Nakajima. They will be sharing our latest financial results and business strategy updates. You can find a copy of the presentation slides on our investor relations website. Just so you are aware, we are recording today's conference for YouTube. You will be able to watch it later on our official YouTube channel. Now, let us move on and hear from Scott.
Hi, everybody. Thank you so much for joining. I will start just briefly. I will turn it over to Hiko Sakaguchi, who is the CFO, who will run through the numbers, then I will come back and talk about what we are doing on the strategy side. To start with, an apology. We did a pretty significant earnings forecast downgrade for the second half, and that is a problem. It is a fundamental failure on our part, and our shareholders and all of our stakeholders deserve our apologies for this. It does call for kind of a fundamental rethink of what we are doing. We are a pure play display company that has always been structurally very challenged. We expected to get to EBITDA profitability in the second half of this year. On that basis, you can manage to be profitable, and that is fine with a path towards getting significantly higher profit going forward.
But to the extent that we are going to miss this, it really does call upon us to clear the decks and do something radically different. Hiko will talk about the numbers, but I am going to spend a lot more time talking about what the forward vision looks like, because it is going to be very different. We call the strategy Beyond Display. We are cutting away from being a pure play display company. There are a number of opportunities that are available that are going to create a lot more value for our shareholders, and that is beginning today. Let me turn it over to Hiko. But again, my apologies. This is an unacceptable outcome, and we are going to fix it.
Hi, everyone. This is Hiko here. Thank you very much for taking time out of your busy day, your busy evening, to join us on this call today. I am going to talk about the first half results for the fiscal year ending March of 2025. Why do not we jump right over to page 12, where we have some earnings numbers for you. What you see in front of you are the results for the first half of the current fiscal year. Top-line sales has come in at a little over JPY 103 billion. EBITDA is a JPY 13.4 billion loss. Operating profit is a JPY 15.5 billion loss, and net income is a JPY 16.8 billion loss. As you see here, sales is down 14% versus the first half of the previous fiscal year. All of our profit lines are actually up year-on-year versus the prior year.
I'll give you a little bit more detail later on in terms of what has contributed, both in terms of the sales decline as well as the improvement in the profit lines. I'm going to just focus right here on this slide on the net income line. As you see, the improvement in the net income line is a little bit more enhanced than what you see above for the operating profit line. Two basic reasons there. One is that last year's first half, we reported a fairly large impairment loss in the order of magnitude of JPY 9.2 billion. That has effectively fallen off, so that's one big reason for the improvement there. The other thing is, as you know, earlier in the fiscal year, we sold our former Higashiura fab, which generated a JPY 1.8 billion extraordinary gain.
These are the two primary reasons for why the improvement in the net income line is actually a little bit more enhanced than those above. The next slide here shows the same results for the second quarter as a standalone quarter. I'm not going to talk too much about this slide or any other slide that really focuses on the standalone quarter. I want to really focus today's meeting, for my part here, on the results of the first six months of the firm this year. I'm going to skip this slide and move on to slide 14. This slide here shows the change in top-line sales versus the first half of last year. On the upper half of the slide, you see our core businesses, in the lower half, our non-core businesses. For our core businesses, automotive is actually up year-on-year.
We had a little bit of a tailwind from the currency, but it wasn't just that. We actually saw strong sales for a series of new products that we launched this year. Automotive up year-on-year. On the other hand, the other part of our core business, smartwatch and VR. OLED smartwatches actually did okay. Sales were flat versus the previous year. The problem was really more VR. VR was down significantly versus the first half of last year, and that really contributed to the 24% decline, what you see on the screen in terms of sales there. Overall, core businesses together down 8%. On the lower half of the screen, you see our non-core businesses shrinking by 53%. That's as expected.
As you know, we've been saying for a while now that we are strategically exiting our unprofitable LCD smartphone business, and this trend will continue. Again, I'm going to skip this slide, which speaks to the same breakdown of sales for the standalone quarter of second quarter. We're going to move on to slide 16 here. This shows our usual waterfall chart showing how the operating profit line has changed from the first half of last year to the first half of the current year. As you see, operating losses, first half last year were JPY 21.4 billion. This year, as I mentioned earlier, we're reporting an operating loss of JPY 15.5 billion. You see the breakdown of how that change happened. Volume, it was a negative factor. That's what I've been explaining. It's the decline in sales of our LCD smartphone business. It's the fall in our VR business.
The mix improvement is really a manifestation of profitability. Here, you're seeing the benefits of us exiting the LCD smartphone business, which was relatively unprofitable for us. It also manifests from the higher contribution of the OLED smartwatch business, which has relatively higher profitability for us. Also, as we've been explaining over the last year or so, we've been strategically either downsizing or exiting specific product lines that had lower margins within our automotive business. All of this together contributed to better profitability. That's what you see in that mixed line right there. Otherwise, we continue to chip away at costs. We're always looking at ways to cut costs, to optimize. The last line you see there, others, primarily inventory valuation losses. This is really just trying to drive stronger and tighter management of our inventory, trying to reduce that balance there.
What you see there as a positive impact versus operating loss is that we've actually made headway in terms of how we've managed our inventory over the last year. Same thing here. Slide 17 and Slide 18 simply express the same waterfall change on a standalone quarter basis for Q2. I'm going to skip both Slide 17 and Slide 18, and we're going to jump into the last section of my part, which is where we talk about the full year forecast for the current fiscal year. As Scott Callon mentioned earlier, we are revising down our full year forecast. The primary reasons are, first of all, some of our end user markets are seeing weakened demand, especially in smartwatches and the automotive sector. So the customers of our customers are exhibiting sort of weaker demand and weaker consumption trends. That's manifesting in our numbers there.
Also, we were expecting earlier in the year in our original forecast for the year to report some relatively high margin eLEAP and/or HMO-related licensing revenue. Unfortunately, it looks like that will be either delayed or smaller in size than we had originally expected. Because of these two primary factors, we've decided to revise down our full year forecast. The actual magnitude of the downward revision is what you see on the screen. We were originally forecasting at the beginning of the year, JPY 221.8 billion of revenue. That now is, we're forecasting JPY 180 billion. So that's a very significant drop there. I'm not going to go through each of the profit lines. Let's look at the operating profit line together. Originally, in the beginning of the year, we were forecasting a JPY 18.2 billion loss, which now we're looking to be reporting a JPY 31.7 billion loss.
So a significant sort of deterioration there in our forecast. All of these numbers, except for the sales line, are still above what we actually achieved last year in the fiscal year ending March 2024. But nonetheless, it doesn't excuse us. These new forecasts are significantly lower than what we had set out to achieve in the beginning of the year. There's no excuse. As Scott Callon mentioned, we were hoping to achieve EBITDA profitability in the second half of this year. That is going to be delayed. We understand the disappointment in these numbers, and all of us at Japan Display Inc are apologetic for this downward revision. The last slide I'm going to speak to here is the waterfall breakdown of our previous forecast versus our new forecast.
On the left-hand side, I am not going to talk to it shows how our first half results actually compare to what we set out to achieve in the first half, which as I mentioned, we are pretty much in line for the first half. It is really the problem is what you see on the right-hand side, which is our second half forecast. We originally set out in the beginning of the year to deliver a small JPY 2.9 billion loss in the second half of the year. That has now expanded to JPY 16.2 billion loss. As you see, the biggest two factors there are what I have explained in the previous slide.
It is the volume represents the fact that the weakened demand in our end customer markets and the mix decline is what I explained earlier about the fact that what we had expected in terms of our eLEAP and HMO licensing fees have either shrunk or are being delayed into the next years. That is all I have in terms of the numbers. I want to hand the podium back to Scott to speak about our new strategies now. Thank you very much.
We are going to make a big change. I am an American. You can probably tell from my accent. You can hopefully tell from my accent. But I have spent most of my life in Japan. I am an immigrant to Japan, and I am deeply loyal to this wonderful country and the wonderful people here. I so admire this incredible tenacity and commitment of the Japanese people and what we have done at Japan Display Inc. We are a display company with roots in Sony and Toshiba and Hitachi. The extraordinary commitment and the never give up and the courage and the tenacity and the discipline it takes to just grind forward despite all adverse conditions is something that I think we should all admire. Yet, sometimes you need to switch from the courage to battle forward against all odds, to the courage to make a big change.
That is where we have ended up as a board and as a management team and as a company. We need a big change. The global display industry, it is structurally unprofitable. We had a path to profitability that we thought had high probability attached to it. We were wrong. We are not delivering on it. Okay, it is time to do something radically different. We are. The strategy is called Beyond Display, because what you are hearing today is that we are making a substantial commitment of our resources away from displays into some new areas. Let me go into those details. On that basis, I think things are going to be really exciting. This is just a really, really tough business, the display business. We have core capabilities that are meaningful. We have world-class technology. We have robust IP. We have deep customer trust.
We have a very strong geopolitical position as a Japanese company, and we do not make money as a pure play display company, despite all the strengths. At this time, we made the decision to make a big shift and move on. We will still do displays, and I will talk about how we are going to do that. But we are adding sensors, AI data centers, and advanced semiconductor packaging. All three are areas where they not only have high growth, they have higher structural profitability, and we have key capabilities that are meaningful to those. We will see where we go. The firm could end up being a pure play sensor company. If that ends up being profitable, we have no problem with pure plays.
We could break ourselves into parts, but we are going to do something radically different that is transformational for our shareholders, our customers, our suppliers, and our employees. Look, displays have the advantage of being really important tech, meaningful to the lives of billions of people all over the world. It is structurally over capacity because of strategic interests to build out capacity, particularly in China, which has taken a view that this is very strategic technology and they are right. But it has meant that the industry is plagued with overcapacity and poor profitability. We need to do something different, and we will. The key is to deliver on the four elements that are on the bottom of the page, which are all linked to. You want technology leadership in order to drive higher margins. You want alliance partnerships in order to deliver higher revenues.
You want an asset-light business model and to have higher capital efficiency. You want to further cut costs in order to drive higher margins and also lower your breakeven point. All those are fundamental, and we think they are possible. To be clear, today's announcement, at the end of this presentation, slide 61, I will not go all the way there and bring us all back here. We point out that we expect to do further disclosures, which is to say, all four of these elements we have been working on, and we think will take us to profitability, and if we cannot get to profitability, we will exit. We do think they take us to profitability. We have been working on for years, and we are about to begin to have some announcements, where, okay, we are doing this, and we are doing this and that.
The reason why today is kind of a strategy explanation, as opposed to showing you what the KPIs look like, is we expect to make some announcements in the next couple of months that will be deeply relevant to the firm and will be positive. And how the firm runs forward. On that basis, at our Q3 announcement in February, we are going to say, "Okay, this is what we have announced. This is what we are doing. We are Beyond Display, and these are the kind of the things we brought to fruition, and here is what we are going to be as a firm going forward, and here is what the KPIs and the numbers look like that attest to it." A bunch of stuff has happened, is happening, and we expect to make some announcements in the near future.
eLEAP is phenomenal, and that's kind of a key element of it. We are going into mass production next month. This has been a brutal, bone-crunching process to deliver the first maskless OLED technology in history. It's just really, really hard. It's fantastic. At this point, we're in mass production next month, so we know kind of how we are. We are creating the world's best OLED. Extraordinary brightness, extraordinary lifetime, lower cost. It is really great tech. It's an example of the first element on the slide, of delivering higher margins with technology instead of doing things that are really, really hard. We love and admire TSMC. They are the only people in the world who knew what they do. Besides being a capital-intensive hardware business, they're doing something that's truly unique and therefore incredibly valuable.
We would prefer to have a substantially lighter business model in terms of assets, and we're going to deliver on that. Do things that are really hard and that no one else can do. You get paid because you deserve to get paid, because you're creating a significant customer and social value. We will run forward in this place, and we're cutting over a significant amount of resources to other areas. Because we should. We had a plan, to reiterate the point, of getting the profitability in displays. It's not happened. Time to make a big move. There are significant areas. We think these three are the most viable for us to deliver a significant different kind of source of profitability. Sensors, I should point out, we have done sensors before. The question is, wait a minute, what are you doing different here?
The issue has always been that we are a display company with our core business. We do a little bit around the edges in sensors, for example, we have. Yet because our core business is displays and unprofitable displays, there's been a decision, and I've been involved in the decision, so I own this, of, okay, we need to get done what we need to get done in displays. It is always taken the strongest, most capable resources of the firm and the highest priority. Despite us having significant capabilities in display, it appears it was always like the second, it was like the stepchild who wasn't treated well. Stepchildren should be treated well. So we're now elevating sensors. We're going to put more resources into it. The key element, it's a massive market. It's actually bigger than the display market.
One of the key elements that underpin structural profitability in displays is that displays are, in a sense, sold by the yard. You take your mother glass. Everybody always wants a bigger display, so you have to have increasingly larger mother glasses with all this CapEx requirements on it, or you're loading fewer items that you're selling, like a larger and larger display under the mother glass. Profitability is really under pressure. The great thing about sensors is they can be very small. They're like semiconductors. So you just have extraordinarily higher levels of profitability available to you if you succeed in sensors as opposed to you succeed in displays. We've got a bunch of technology available in this area which we'll begin rolling out far more aggressively, putting more resources into this.
One of the things that we're doing, as an example, which is one of our most recent entry, which is called ZINNSIA, which is a high precision sensor interface. This is my favorite description of ZINNSIA. Literally, it makes everything into a switch. We have the ability to turn any surface into a touch interface. It's just super great. We have never experienced this kind of demand for a product. We have customers already in hand. We really need to resource up this area. This is in part the background for we're making a hard cut over to put more resources into things like ZINNSIA, which we think will drive substantial higher profitability for us going forward. This is a long presentation. We try to give you more information rather than less, but I'm not going to go through every slide.
We've got a serious set of capabilities in sensors, and we're about to deploy them in a big way, different from what we've done before. The day of Japan Display Inc being, for all intents and purposes, a display pure play company is over. We're cutting over. Sensors is one area. AI data centers is another. It's probably worth understanding why this makes sense for us. It kind of reflects Japan's kind of unique situation relative to, well, it's centered on Japan being a small island country that is super sophisticated with massive growth in data processing activity. Japanese compute demand, per the Mitsubishi Research Institute, is literally going to increase 100,000x between 2020 and 2040. We need massive more compute here. It's a small island country, and so it's not as if you can say, well, we'll just kind of open up this or that.
In much larger countries, it's not just about the land. For data centers, it's like three-quarters of the country is mountainous. You can't put things there. There's tsunami risk. We're an island country. Good locations, because land is so scarce and so unavailable in Japan, are already built out. It's a huge problem to get locations for data centers. Two, we have a deep shortage of grid capacity. It is a fundamental problem within Japan's economic infrastructure that's understood and is going to take decades to resolve. It is like, okay, you can't get the land to put up a data center. Two, you can't get power to your data center, and as we all know, data centers require huge amounts of power.
The third issue is there's a massive shortage of construction labor linked to both the aging out of Japan's construction workforce and all these rules to protect workers from overtime, which make it impossible for you to work long hours. We have this double punch that is taking down the ability of Japan to build things with any degree of speed. What it means is 100,000x in compute demand and a total unavailability of the data centers to accommodate this. We're Japan Display Inc, w e not only have some technical capabilities that are relevant to this space, but we have what you need for data centers. We literally have kind of unused fabs that are available that we will deploy against this opportunity. We will deploy. Deploying kind of is two versions.
The more obvious one, and we will do this, is to sell what we have at extraordinary returns for Japan Display Inc shareholders and get the money back. That's great. We are in the business of rewarding our shareholders and growing value for our shareholders. There's another element, and particularly we have, because there's global interest in Japanese. Japan is deeply integrated into the global economic system. There's global interest in Japanese data centers. We also have foreign data center enterprises and investors coming up and saying, "We want some of your engineering capability involved." We may do some partnerships also in this area where we're kind of involved as an operator in the data center space.
But as an example, we have an unused fab right near Tokyo, away from the ocean so that we don't have to worry about tsunami risk, 44 MW available, power hookup immediately, a built out floor area, and a clean room area. Data centers need relatively robust construction. We have super heavy equipment, so we have absolute world-class construction. We've done the work on this. Our fabs and our buildings can be deployed immediately for data centers. This shows a little bit of map. It says Japan Display Inc Mobara right there with a blue dot. In Japanese, it says that we've got a factory there, and we have an electrical hookup going right into the factory. This is a super prime location ready, available to become an AI data center. We have another fab. This one's in Tottori, so it's in southern Japan.
Doesn't have the prime location of Tokyo, which has all this kind of network traffic. But, again, there's all sorts of things that you're doing with data centers, and you can do LLM modeling, and that's kind of more compute intensive rather than bandwidth intensive. There is an opportunity to deploy this. It's reasonably close to Osaka and Hiroshima. But it's available. Again, a bunch of land, power right available. We've got the buildings, the clean rooms to become data centers effectively also immediately. So Tottori is an opportunity in the data center space, and we think we'll get this done. There it is. Again, the yellow lines are the trunk lines that are running, and we got one going right into our fab in Tottori. This one's a little bit more work. In fact, a lot more work.
But I'm pointing it out as an opportunity because it has more work because it's undeveloped. So this will be a multi-year process to get this thing online. But it's worth pointing out that we do have the land, and it's sitting right next to a massive 275 kV trunk line right there. So Tokyo area, land's available. The trunk line is literally right there. This is very low cost and a lot easier in terms of doing construction to bring this up, so it'll be faster rather than slower. But this is, again, an order of magnitude more difficult. But it's the first two opportunities, which are the immediately, like we can solve for the Japanese AI data center problem now, that are really interesting. So we're going to do AI data centers, primarily we think as a sales opportunity and monetization of shareholder value.
But also there will be an ongoing, we think, presence there in some way or form. It is a huge growth market, and we have become more involved in the space in ways that we are pretty sure we can add value. Final area is advanced semiconductor packaging. Another very big market, substantially better economics. I mean, pretty much everything has better economics in the display industry than what we are achieving today. It is worth pointing out that there is a significant technology shift that is going on right now. AI semiconductors are leading edge semiconductors. They are just super hot. Because they are so hot, thermal requirements have become so much higher that organic substrates people have been using no longer work. They do not have the thermal characteristics that are necessary.
The increasing use of chiplets, so they are putting multiple chips on a single substrate, is kind of calling for larger substrates, and silicon is very well positioned to do. There is a huge need to move to glass. The industry has recognized this, the semiconductor industry has recognized this, and we are seeing high-end semiconductor manufacturers buying display fabs for the glass processing capabilities. TSMC bought and is buying, it appears, a second fab from Innolux. Micron has bought multiple fabs from AUO. The key is to be able to do super high resolution, kind of line etching to connect all these various chips on the substrate. Japan Display Inc is the best in the world at high resolution, ultra-high resolution processing glass substrates.
At ASP, which in this case will mean advanced semiconductor packaging, we have a technology set of capabilities that are deeply relevant to the space. I should have pointed out earlier, we have got ongoing activity in sensors that we are going to make bigger. We have ongoing discussions that we think are going to come to fruition sooner rather than later in the data center space. We have got ongoing activity in the semiconductor space because it is what I said earlier, this is a technology transition that is enormously important. I am going to show these slides rather than speak to them. I just want to make sure you know we actually have some material that describes what we are doing and why it is appropriate to the space. But we are deeply relevant to this, and you should expect Japan Display Inc to be involved.
Thank you for your patient listening, and I look forward to serving you in a far more powerful way, with this new business model. We do think we will get to profitability in displays, but it is going to be a radical shift of the company to move resources away from it. If we do not get, again, to profitability in displays, then that makes it pretty straightforward. We were going to focus our resources on high profitability areas. But we believe this is a powerful way to run forward for you. Again, I apologize for this. What we expect to see this year is a miss in terms of our earnings. It is unacceptable. We are going to get this right, and we are going to have it fixed for you. Thank you very much. Happy to take any and all questions.
If you have any questions, please click on the raise hand icon, or you can type your questions in the chat. Just to remind you, if you wish to ask a question, please use the raise hand icon. It seems there are no questions, so we will be wrapping up today's briefing. We deeply appreciate your participation and would like to express our sincere gratitude. Thank you very much for joining us today.
Thank you very much, everybody. Goodbye.