The big picture: Virtual reality has yet to take off in a big way, but a shift in consumer habits along with the introduction of more affordable headsets like the Oculus Quest 2 have rejuvenated this market segment to the point where Japan Display is betting its future on making displays for VR headsets. It's a calculated risk that could pay off in the future when the market will be more mature and JDI will have established a strong foothold.

Japan Display (JDI) used to be one of Apple's main suppliers of LCDs for the iPhone, and over the years most of its business was focused on that. Back in 2019, the company sold its screen manufacturing plant to Sharp for $390 million to repay debt to Apple and avoid further losses from the industry's growing preference for OLED screens in smartphones.

That said, the Tokyo-based LCD manufacturer believes OLED still are at a disadvantage compared to LCD technology when it comes to achieving a higher yield for high-resolution displays, which in turn makes the latter technology more competitive in terms of price.

Moving forward, Japan Display will focus on perfecting its LCD tech for VR headsets, which are expected to become more popular in the coming years.

According to a Bloomberg report, the lockdowns during the pandemic have created higher demand for VR headsets, with Facebook and HTC both experiencing a surge in sales over the last 12 months. That consumer trend has persisted even as the restrictions eased, and VR headset manufacturers have largely shifted away from OLED on newer models like the Oculus Quest 2.

JDI VR chief Takeshi Harayama told Bloomberg, "it's hard to find a VR headset maker who doesn't have a relationship with us," which is why the company feels confident about its strategy. Chief VR headset engineer Yoshihiro Watanabe says JDI is capable of making displays with pixel densities of 1,200 pixels per inch, which is a lot higher that that found on high-end smartphones.

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OLED makers like Samsung and LG aren't particularly interested in the VR headset market, since it's a lot smaller than the smartphone market. JDI believes it can fill this gap, but not all VR headset manufacturers are opting for LCD screens. For instance, Sony is said to use OLED panels in its next PlayStation VR headset, but JDI still expects revenue from non-mobile businesses, which includes VR headsets, to increase 25 percent this year and reach 70 billion yen ($637 million).