Corning Glass Prices to Drop 4-5 Percent as Industry Clears Inventory

Corning’s Q4 LCD glass prices will fall 4 to 5 percent, slightly above its quarterly average, as TV manufacturers seek to clear excess inventory, analysts said. Corning is projecting a “mid-single” digit decrease at its own and Samsung Corning Precision Glass joint venture glass businesses, Vice Chairman James Flaws said Monday in a conference call.

The glassmaker typically forecasts 2 to 3 percent quarterly price declines, but with a buildup of inventory at LCD TV assemblers, panel manufacturers are pushing for sharper price cuts, Corning officials said. LCD inventories fell from 18½ weeks to 17 weeks in Q3 and could hit 16 to 16½ weeks by year-end, though much will depend on holiday retail sales. About 16 weeks is the preferred level, as a week less leads to some panel sizes being out of stock, Flaws said. Taiwanese LCD panel makers cut production, in some cases, to 50 percent of capacity in September from mid-80 percent in July and August, Flaws said. Samsung and LG Display kept production around 90 percent of capacity for much of Q3, but have since scaled back slightly, Flaws said. Corning operated its glass plants in Japan and Taiwan at mid-80 percent, he said.

Global LCD TV shipments rose 33 percent in July and 25 percent in August, led by strong sales in China and Japan. But U.S. shipments fell 3 percent in July, 11 percent in August, and 8 percent in September due to a “lack of retail promotions,” Flaws said. The China market recovered in Q3 amid holiday promotions. And possible holiday promotions in the U.S. could help spur some growth in November and December, Flaws said. Corning is maintaining its forecast for TV shipments this year at 185 million units, up from a prediction of 171 million units made earlier this year (CED Feb 8 p1), Flaws said

U.S. retailers, however, reported little evidence of manufacturers cutting prices or preparing aggressive promotions. Samsung and Sony have pushed promotions aimed at selling 3D TVs, but largely through $200-$300 instant rebates or bundling. Sony has been packaging a free PlayStation 3 with its 3D TVs, retailers said.

"I don’t know of any major price drops planned, but there are some really good deals on 3D televisions,” said Mark Shaw, electronics merchandising manager at Nebraska Furniture Mart. “As far as the regular LCD and LED-equipped sets there is nothing out there in pricing cuts that we have been privy to. When I talk to manufacturers they are at the point on the panel production where they will idle a factory before they lose money on the panels."

Many of the price drops are in notebook and PC monitor LCDs, where some models in the 18- to 24-inch range are being sold at cash cost, industry officials said. Some panel suppliers have “refused to take orders at that level,” Flaws said.

Despite the increased inventory, Corning projected spending $2 billion on capacity expansion in 2011. Corning lowered its spending for this year to $1 billion from $1.2 billion. The 2011 capital budget includes opening an 8th-generation LCD glass plant in Beijing by mid-2011 to supply BOE Hydis’ panel factory. It also will include moving some manufacturing of its scratch-resistant Gorilla glass to 6G substrates at a former Sharp 6G facility in Shizuoka, Japan. Gorilla glass is forecast to generate revenue of $450 million this year, largely from notebook and tablet PCs -- Apple’s iPad and Hewlett-Packard’s Palm Pre 2 uses it -- and near $1 billion in 2011. It’s being produced using 4G substrates at Corning’s Harrodsburg, Ky., factory. But Corning is spending $20 million to $25 million per quarter to retrofit the former Sharp plant for Gorilla glass production. Corning is developing Gorilla glass for TVs, with the first customer expected to ship sets in 2011. Among the possible candidates for Gorilla TV glass as LG Display, Samsung and Sharp, analysts said.

If LCD TV sales during the holiday season fall short of projections, Corning could shift some glass furnaces to making Gorilla glass sooner than originally planned, Flaws said. Converting a conventional LCD glass furnace to Gorilla “doesn’t take a long period of time,” said Flaws.

Corning’s Q3 net income improved to $785 million from $643 million, despite taking a $30 million loss on the retirement of debt. Revenue rose to $1.6 billion from $1.47 billion, despite display sales falling to $645 million from $679 million a year ago and $834 million in Q2. Inventory rose to $712 million from $579 million on Dec. 31, half of which was tied to LCD glass, Flaws said. “There is a level” of glass production to operate at “maximum efficiency” and “we are close to the minimum level,” Flaws said.

Corning’s specialty materials revenue, which includes Gorilla glass, increased to $159 million from $90 million a year ago, while that from telecommunications grew to $464 million from $450 million. The telecommunications business benefitted from a “robust” North American market for fiber-to-the-premises (FTTP) cable, Flaws said.

Corning will take a 1 cent per share charge against Q4 earnings to shut down its 60-milliwatt frequency-doubled green laser business, Flaws said. Corning, which supplied 530-nanometer green lasers for Microvision’s ShowWX micro-projector, struggled with yield issues. It was scheduled to ship the second-generation G2000 green laser this year that increased brightness to 15 lumens from 10 lumens. Microvision brought on Osram earlier this year as a second green laser supplier. Microvision officials weren’t immediately available for comment. “Native” green lasers are increasingly replacing frequency-doubled versions and Corning’s product was going to have a “limited” life span, Flaws said.

Corning also was scheduled to start production late this year of 0.4mm-thick glass substrates for ultra-thin TVs. While thin glass remains in development, it isn’t a “significant portion” of Corning’s TV business yet, Flaws said.