Apple is reportedly participating in business talks with Japan Display over plans to finance a display factory that will manufacture screens for the iPhone.

Anonymous sources cited by the Nikkan Kogyo Shimbun and Jiji news wire said Apple is considering striking a financing deal with the Japanese display maker to invest 200 billion yen ($1.7 billion) in a display factory that will serve mainly to supply displays for Apple's mobile devices.

"We are reviewing various considerations to strengthen our business competitiveness, including new factories, but we haven't made any decision yet," Japan Display told the Wall Street Journal.

According to sources, the proposed facility will be built in Ishikawa Prefecture in the Chūbu region on Honshū Island and is expected to commence operations in 2016. Initially, the factory will be used to build the low-temperature polysilicon (LTPS) displays used in the iPhone 6 and iPhone 6 Plus as well as panels for other companies, but it could also transition into manufacturing OLED screens for Apple's future products. The first Apple device that is said to use OLED screens is the Apple Watch, which CEO Tim Cook announced will be released in April.

Japan Display is the result of a government-backed merger of the ailing display units of Sony, Toshiba and Hitachi that took place in 2012. Last year, Japan Display CEO Shuichi Otsuka said the company needed to build a new facility since its Mobara factory in southeast Tokyo was already reaching full capacity.

Shares of Japan Display closed 5.4 percent higher at the end of the trading day Friday in Tokyo. The company has been off to a rocky start following its initial public offering but has posted a profit of 19 billion yen ($160 million) in the fourth quarter of last year.

In contrast, major competitor Sharp saw its stocks fall 2 percent following the news. Last month, the Osaka-based Sharp revised its expectations to a net loss from a net profit due to severe competition from Japan Display, which also supplies smartphone displays for Xiaomi and other Chinese manufacturers.

Both companies already supply displays for Apple. However, if the reported deal with Apple goes through, Japan Display could get another leg up in its rivalry with Sharp.

No final decisions have been made, though, and it is possible that Apple could look to another supplier for such a deal. In fact, Innolux, a subsidiary of Taiwanese components manufacturer Foxconn, was said to have been building a $2.5 billion facility to manufacture displays "exclusively for a client." Although Innolux did not name Apple as its single client, the iPhone maker is known to be the only company that can generate enough demand to require such exclusivity.

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