Greetings, and welcome to the Japan Display earnings video conference for the second quarter of fiscal year ending March 2024. With us are Scott Callon, Chief Executive Officer and Chairman of the Board, and Hiko Sakaguchi, Chief Financial Officer. Please note that this conference is being recorded and will be posted on JDI's YouTube channel in a few days. After the management presentation, there will be a question- and- answer session. Questions can be asked by pressing the raise hand button, or you can send us questions via chat. Now, Hiko will start the review on the Q2 earnings. Hiko, please go ahead.
Hello, everybody. Thank you so much for joining the call today. I'm Hiko Sakaguchi, the CFO of JDI. I'll be giving you a brief explanation about the first half results for JDI, as well as giving you a bit of an explanation for the upward revision in our full-year forecast. That will be followed by our CEO, Scott Callon, speaking to an update of METAGROWTH 2026, our growth strategy. With that, I'm going to dive right into our first half earnings. I'm looking at page four right now. This is the results of our first half. What you see in front of you is sales came in at JPY 119.9 billion. Operating profit was a JPY 21.4 billion operating loss, and net income was a JPY 28.7 billion net loss. So, dreadfully still in the red, and our heartfelt apologies for these numbers.
But on the other hand, when you compare these numbers versus the plan that we shared with you in the beginning of the year, we've actually outperformed on all items. Starting with sales, our core businesses, automotive and smartwatch and VR, are steadily up. Our non-core business, which is the LCD smartphone business, we have been strategically shrinking this, moving towards an exit of this business. If you look at our profit lines, we've outperformed on all the lines, primarily on the back of strong positive effects. We have higher yields, higher fab productivity. We've continued with relentless cost reductions, and probably most importantly, a breakthrough to profitability on one of our key strategic businesses, core businesses, which is our OLED business. Just to make a note, we've actually changed the names of some of the sales segmentation here.
What we used to call mobile, we have now made that LCD smartphone, and what we used to call non-mobile, we've now made that smartwatch and VR. We feel that these names better represent what exactly is going on within these sales segments. We haven't changed the segmentation itself. It's really just the naming of the segmentation. Hopefully, this makes things a lot more transparent in terms of what's happening with the businesses. The next page is slide five. I'm going to breeze through this because most of this content is a rerun of page four. I think the important part here to highlight is that our core businesses are steadily growing, and our non-core businesses are steadily shrinking as we intend them to be. Automotive is actually temporarily down. That's because, as we explained earlier in the year, that we are strategically shrinking non-profitable business lines.
But if you look at the longer-term trend, it's still very much steadily on a growth trajectory, as is our smartwatch and VR business. Again, core business on a growth path. Non-core businesses, LCD smartphones in particular, are on a path towards exit. The next slide, page six, shows operating profit breakdown in the form of a waterfall chart. On your left-hand side, you have the year-on-year comparison, and on your right-hand side, you have the comparison versus the guidance we gave you in the beginning of the year. Starting with the left-hand side, year-on-year, the number's down from the previous year. You have to recognize that last year's first half benefited from a rebound of the world after the lockdowns in Shanghai. So part of the reduction is a fall off of that special rebound demand in the first half of last year.
Some of the specifics here are the volume on the left side is down primarily on the back of the shrinkage and the exit of the LCD smartphone business. Fixed costs are a positive force. The big part of that is the closure of our Higashiura fab. And then the inventory impact is really just a lot of accounting, the effect of the inventory write downs. On the right-hand side, as explained earlier, this shows here the outperformance of our first half operating profit versus the guidance we gave you. Again, here we have strong volume growth in our core businesses. We have continued relentless fixed cost reductions helping the case. And again, we've delivered here in outperformance versus our original plan. I'm going to switch gears now towards our full-year forecast. I mentioned earlier that this is now an upward revision. I'm looking at page eight right now.
As you will see, we have revised up all items for the full year. That's sales through all the profit lines. A large part of that is just a reflection of the strong outperformance we've had in the first half. We've either kept the second half forecast either flat or just ever so slightly downish, making for a full year forecast increase for the full year. I think one item particularly noteworthy here is that we've actually taken down the second half forecast for our smartwatch and VR line. That's a reflection of the slightly cloudy outlook that we believe we're seeing in the market for VR. We're going to watch this carefully. We're going to watch to see how the Christmas sales proceed in this segment, and we will revise this as necessary once we have greater clarity on this line item. The next page here on slide nine.
Before I talk about it, let me just mention that there was an error on this slide in the initial posting that we made. This slide, what you see in front of you, is a corrected slide, and also we've actually reposted the correct slides on our website as well. So, if you're working off an old version, please refer to this version or the newly posted version. So what you're seeing in front of you here is effectively an operating profit breakdown going from the first half that we just completed into the second half. And I think the point here to highlight is that our operating loss nearly halves as we move into the second half. This is what we've been talking about from the beginning of the year.
We've been saying that the shrinkage and the exit from our LCD smartphone business, the selective shrinkage of our unprofitable lines in our automotive business, there has been a lot of work done in the first half of the year, which will start to bear fruition beginning with the second half of the year and beyond. What you're seeing really here is effectively the manifestation of those efforts in our operating losses effectively halving as we move into the second half of the year. The final page for my section here is on page 10. This is showing the same picture, but this time comparing the second half of last year to the second half of this year. What you're seeing here, again, is just another representation of the fact that we are shrinking our losses by about 2/3.
Again, it's a reflection of the fact that we are really working hard on, number one, driving and enhancing the core profitability of our overall portfolio by stepping out of less profitable businesses and non-profitable businesses, simultaneously working still hard at reducing fixed costs where we can. We're expecting this to bear fruit in the form that you see in front of you. Again, we're expecting, versus the second half of last year, for operating loss to shrink by about 2/3. That's it for me in terms of first half earnings and the outlook for the second half. At this moment, I'm going to hand the podium over to Scott Callon. Thank you very much.
Thank you, everyone, for joining. I'm going to take us through the business and the strategy update. There's an overview, and it goes over four pages. My apologies. We need to do a lot. It wouldn't fit on one page, wouldn't even fit on two pages. Forgive me for that. Look, the very first bullet point speaks to the ambition and the need to be ambitious from what we're doing. We're nothing short but a total transformation of our business model and our earnings. Simultaneous to that, an extraordinary ambition to build a new global display ecosystem based on our technology set. There's something profoundly wrong with the global display industry. I mean, it has the qualities of being a phenomenally big market, and we'll speak to market size later.
Globally, JPY 120 billion a year, and yet a bunch of competitors, including ourselves, who have thus far been kind of cookie cutter copycats of each other in terms of the business model, combining high capital intensity with no differentiation and low profitability result. This has to change in the most profound way. We're going to change it. We're on the way to changing it. I'll go into the details. As part of that, on the second bullet point, we've had to make some very hard decisions in terms of taking down our costs, eliminating less productive fabs like our Tottori fab, which we announced on August 2nd, and we'll bring production to an end in March 2025. We were a late entrant to OLED, and that's a problem. A little bit of an innovator's dilemma problem because we were so strong.
Remember, this is a coming together, JDI is of Sony and Toshiba and Hitachi's display technology businesses. We were extraordinarily capable and the best in the world at LCD displays. We hung to it too long. We fell behind. OLED is fantastic, and we were late getting there. We have, as a result, figured out that we were late in taking actions, and we have leveraged our capabilities to not only get there, but be able to take a few years and build competitive advantage. Probably the most important thing I can share with you today is that the OLED business is now profitable, unlike our legacy LCD business. What JDI is doing right now is we are shrinking our legacy LCD business and pushing really hard on the OLED business, the ultimate expression of which, and I will spend some time today, the next generation OLED.
Customer demand for our OLED product is through the roof. We expect to deliver an increase in sales 7.4% year-on-year in this year. The painful good news, or the bad news, is that we actually have more demand than we have production capacity. We are trying to think very, very hard about how we increase the capacity. It is not nearly as simple as just to say we are going to build more lines, because in order to optimize the fabs and run the fabs really hard and run them on a low-cost basis, what you really need to do is you need to reconfigure a fab. It means if we are going to build more OLED for our customers, and this is existing OLED tech. We are not unique on next generation, but we are very advantaged on existing OLED also.
We have some capabilities in terms of quality and resolution, and most particularly in terms of low energy consumption in our OLED that other guys don't have, and so there is this enormous demand for it. Anyway, for us to build more, we have to take down assembly lines for a period of time. Our customers for this product is very strategic and who want us to build as much as possible, as quickly as possible. It is not necessarily an easy conversation with them about how we would take our lines down for a little bit of a while because they want more product now. But we will work through this. The point is, we have advanced capability in OLED. Even in existing technology space, it has brought us profitability, and we expect to see significant growth going forward. I will talk about eLEAP in detail further in the presentation.
Other things going on. eLEAP is a breaker. It is the best OLED technology on the planet. We need size. We are going to deliver size from China. China, it has got the world's largest display market. It has got the world's largest and most competitive display ecosystem. If you want to deliver quality and scale to the world, you do it from China. So we have signed an MOU with our partners in Wuhu, which is both the government and industrial and strategic partners. We expect to sign a definitive agreement by the end of this year. It will increase our production capacity by over 50x . We had an alliance set of discussions with HKC. Given that we decided to go directly to China and control the operation and operate in Wuhu, we switched those discussions mainly to automobiles. We have ongoing discussions with them.
As you know, we acquired JOLED's engineering talent in order to push forward on eLEAP. It's METAGROWTH 2026 more broadly, but they have world-class eLEAP engineers, and we wanted them, and we're delighted to have them join us. We've continued to work on sustainability. We announced support for TCFD. Although we spent quite a bit of time talking about China, specifically HKC and Wuhu, it is the case that we have ongoing discussions in India, and we expect to build a local production presence not only in China but also in India. It will be eLEAP. A major transformation of the firm is underway. I don't really want [inaudible], I think, to talk for an hour, so this is material we provided before. I think it's important to have it comprehensively in one place, but I won't speak to it directly.
There is a major transformation of the firm underway. This speaks to not only are we taking our production totally, but across the board, we've moved our capability into our high-end facilities and made some painful decisions in terms of decreasing our footprint and giving ourselves more competitiveness. That is what eLEAP stands for. Environment positive lithography with maskless deposition , extreme long life, low power and high luminance, and any shape patterning. It offers unprecedented customer value, double the brightness, 3x the lifetime. It's not on the page. We've had a fair amount of discussion about what we should reveal about the cost competitiveness, but I think we need to be more transparent on this, and we'll deliver more transparency going forward. You should know, generally 20%-30% lower cost in our production process with eLEAP because it's an advanced and simplified production process.
We get rid of these huge metal masks. We go to photolithography, like in the semiconductor process. It's more efficient, it's more cost. The other thing that's important to know is that it delivers unprecedented environmental value because you don't have these massive masks being pushed around in the fab in the conventional OLED process. We cut CO2 emissions by over 50%. OLED is fantastic and doesn't deliver everything we need from it. Because many of us are using phones with OLED, and smartphones are expensive enough, and you can have a shorter duration display, meaning OLED displays typically burn out in about three years. Since the smartphone replacement cycle is short enough, consumers will accept that. It feels like there may be more OLED in the world.
In reality, OLED market share is less than 1% for autos, less than 3% for IT, so notebooks, monitors, less than 3% for TVs. It's because it has high production costs and short lifetime. What is on the top of the page is really unfortunate because OLED is extraordinary. It's natural light production. It's beautiful. You get true blacks, perfect blacks. There's a wide color gamut that is beyond what you can do with an LCD display. Because it is organically emissive, you have no need for a backlight, so it is thinner, it is lighter, it is low power. You have ultra-wide viewing angles because you're not trying to look at through the glass of LCD. It's extremely fast, much faster than LCD. It's a phenomenal display tech, and yet it is way too expensive and it has poor lifetime, and eLEAP solves both of those.
This is how we think we create a new global display standard, and that is eLEAP. In order to deliver against the market opportunity, which is, we think, across literally every display application, we need to get our development done, we need to get it done quickly. We shipped our first eLEAP prototype last year to customers, September 2022. It was 1.4 inches in size. We began shipping in July of this year, a 14-inch prototype to customers. The display area is 1580x. It just goes directly to the ability for us to scale this technology across a broad array of applications, and we will go to bigger sizes. We do think eLEAP completes the third display tech revolution, which is to say I am old enough.
I remember when I was a kid, cathode ray tubes, watching TV on these huge things that would take, in many cases, multiple men much bigger than me, because I was a child, moving these things around. But it was extraordinary to have moving images in every household. I mean, CRTs are phenomenal. Then we had the second revolution, which is LCD, and it made these massive things redundant, and they were compact and energy efficient, and you can move them around. We think the third revolution should be OLED. The characteristics of it as an organic display technology, I mean, the beauty of it, the thinness of it, the lack of a backlight, the ability to be flexible. LCD can only be rigid. OLED can go into any sorts of shapes and sizes.
It is beautiful, and yet it is flawed in its high cost and short lifetime, and we solve it for OLED. So we intend to complete the third display tech revolution. In short, we think eLEAP is a game changer, and we are going to drive it as fast as we can and as hard as we can. It combines unmatched performance, low cost, and the ability to display across, scale across all display sizes and applications. You should know at this point, no one has been able to build an OLED display on anything bigger than a G6 substrate, meaning you cannot get to the bigger sizes with a lot of efficiency. We truly believe the total addressable market, because eLEAP can go to those large sizes, and also can be small size, can do high performance, it can do high resolution, it can do low cost.
The total addressable market is truly the entire global display market. Our goal is to put eLEAP on every display on the planet. That gives you an annual market size of JPY 120 billion. We are committed to delivering unprecedented value in completing the third display revolution. But there are things that we think are relevant I will not go through in any detail. I thank you for your patient listening, and let us see if they have any questions, and we would be happy to take them on. Thank you.
If you have questions, please press the star pound button. Anybody have any questions?
All right. We're going to bring it to a close. I think the important message from today and the reality we've delivered is after years of grinding away with losses in a legacy LCD display business, we've broken through to profitability in OLED, and that's just with an existing OLED technology set. eLEAP, we think, is utterly transformational in terms of the ability for OLED to penetrate these massive markets, autos, IT, TV, and we expect to deliver on that. The technology development is going enormously well. The capacity is going to become available to us when we complete the Wuhu deal. It's large. Look, we're talking with kind of these huge tech customers in the world. They need to be able to see from us production capacity to serve their needs because they want eLEAP, but we can't ship them six smartphone a year.
Getting that enormous size and production capacity in an efficient way enables us to work with them to cut over their technology, their display technology platform to eLEAP, and we think that's going to happen. Thank you, everybody. I'm grateful for your time. I know you're busy. Stay tuned. JDI is working to complete the third display revolution. Have a good day.