Prime View International Sees Surging Demand for E-Readers

Riding a wave of e-reader sales, Prime View International (PVI) expects electrophoretic displays to account for 60-70 percent of its 2010 revenue, up from 50 percent last year, as newly acquired E Ink generates sales, executives said on a quarterly earnings call. PVI completed its $445 million purchase of E Ink on Dec. 23.

PVI, which expects 2010 quarterly operating expenses to be about $24.4 million, said it would spend $500 million over five years expanding production in Yangzhou, China (CED April 20 p4), where it assembles displays and makes electronic ink. PVI will add automated production to triple assembly capacity there by August as it seeks to keep pace with a “major increase” in e-reader sales that’s expected in Q3-Q4, PVI Chairman Scott Liu said. PVI subsidiary Transcend Optronics operates the plants in Yangzhou.

The manufacturing expansion will come as PVI readies release of color, touch and flexible electrophoretic displays this year, Liu said. A “new generation” of electronic ink also is being developed that promises improved contrast ratios and faster switching speeds, he said. In addition to China, PVI also produces electronic ink at E Ink’s facilities in South Hadley, Mass. With the addition of E Ink, PVI’s Q1 R&D expenses increased to 7 percent of revenue from 4-5 percent prior to the acquisition, Liu said.

PVI also is developing a next-generation system-on-a-chip (SoC) that will combine a processor, controller and memory on a single IC, Liu said. Freescale is among those producing processors for e-readers that typically run at 600 MHz. “We'll eventually be able to replace almost the entire PC board with a single chip,” Liu said. PVI also will make film for its displays at faster speeds and improve yields, all of which are expected to cut manufacturing costs by 30 percent this year, Liu said. “It will allow our customers to reach lower prices while maintaining our profit margins,” he said. PVI’s Q1 gross profit margin was 29 percent, nearly double that of Q4, due largely to the addition of E Ink, Liu said. The average selling price for electrophoretic panels is expected to decline 15-20 percent this year, Liu said. Amazon and Sony are among PVI’s largest customers.

E Ink founder Russell Wilcox, who left PVI in March (CED March 3 p5), will remain a special advisor to the company, Liu said. As part of E Ink’s sale, Wilcox received PVI shares, but owns less than 5 percent of the company, Liu said. Wilcox was “regarded as a good entrepreneur, but we reached a stage where we really needed a team effort” rather than a single individual, Liu said. Wilcox and PVI parted on good terms, he said. Wilcox was replaced by PVI executive T.H. Peng, who was named executive vice president of operations.

PVI will move its standard TFT-LCD business, which accounted for 40 percent of Q1 revenue, to niche applications starting in fiscal Q2. Sales of standard TFT-LCDs will represent 5-10 percent of quarterly sales, Liu said. In their place, PVI will seek to boost sales of LCDs using subsidiary Hydis Technologies’ advanced fringe field switching (AFFS) that widens a screen’s viewing angles and improves its visibility in sunlight, Liu said. AFFS is similar to in-plane switching (IPS), but has better color gamut and higher brightness. It also can be applied to pressure sensitive touch panels owing to stable dynamics against external pressure like that found in tablet PCs. The technology’s low reflectivity is responsible for its improved sunlight readability.

Hydis, which PVI purchased in 2008, has more than 1,500 patents related to the technology, Liu said. Hydis licensed AFFS to Hitachi and Sanyo Epson Imaging Devices in 2004 and 2006, but neither company brought a product to market, Liu said. In 2006, Hydis also developed AFFS modules for mobile displays. Hydis “didn’t have the resources to perfect the technology,” Liu said. The AFFS panel production “is much more complicated” than standard TFT-LCDs and while Hydis is getting “acceptable” yields, improvements are needed, Liu said. Hydis was “a little in the red” in Q1, but is expected to turn profitable in Q2, Liu said. AFFS carries a “much higher” premium and gross margins than standard TFT LCDs, he said.

Hydis’ AFFS technology will generate licensing revenue for PVI, the first of which is expected to come from LG Display and the IPS Alpha LCD joint venture that includes Panasonic, the company said. PVI signed a cross-licensing pact with LG Display in December. LG Display, which is said to be using AFFS in the LCD panels it produces for Apple’s iPad, is investing $30.5 million in Hydis through a corporate bond purchase. It also made a $10 million investment in PVI’s global depository receipts. LG Display declined to comment on whether its producing iPad displays. While Apple hasn’t commented, it signed a $500 million LCD supply deal with LG Display late last year.

PVI swung to a $8 million Q1 profit from a $31.7 million loss a year earlier as revenue soared more than 80 percent to $158.8 million, the company said. PVI’s gross profit was $21.2 million, while pre-tax income improved to $10.3 million from a $31.7 million loss a year ago, the company said.