Corning Seeking to Limit First-Half Price Declines in LCD Glass
Corning has embarked on a new LCD glass pricing strategy as it seeks to curb the 4-5% quarterly declines it absorbed in the 2nd half of 2006, company executives told analysts in a quarterly earnings call Wed. The goal, they said, is to limit price decreases at Corning operations to 1-2% in each of the first 2 quarters of 2007 and hold prices steady in the 2nd half as glass supply tightens.
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Price cuts the first 2 quarters are expected to be slightly higher at Corning’s Samsung-Corning Precision (SCP) LCD glass joint venture, they said. The effectiveness of Corning’s plan will depend partly on whether its chief competitors -- Asahi Glass and Nippon Electric Glass -- cut prices to gain market share, company officials said. “We don’t believe that the glass industry is putting in place enough capacity such that someone could have enough to actually try to steal a huge amount” of share, Vice Chmn. James Flaws said. “That’s the core of our pricing strategy, and glass supply demand will be tight in the back half of the year” making it “relatively hard for someone to come in with a very aggressive price.”
Corning is seeking to avoid a repeat of the first half of 2006, when customers built up LCD panel inventory only to slash manufacturing capacity to clear it out. Corning is forecasting a 10-15% decline in glass volume in Q1 based on “seasonality” of the market, Flaws said. That’s against a 15% increase a year ago when the industry “ended up with an unhealthy build up,” Flaws said. Overall, Corning is projecting a mid-30% industrywide increase in glass volume this year to about 1.6 million sq. ft., company officials said. That’s down from a 40-50% increase last year but coming off a much higher volume, company officials said. About 60% of the glass volume is expected to ship in the 2nd half, company officials said.
The LCD TV business will determine the growth in LCD glass, Corning executives said. Worldwide sales of LCD TVs are expected to reach 68 million units this year, up from 43 million in 2006. That’s up from Corning’s forecast of 51 million units a year ago (CED Feb 6 p2). The installed base is expected to reach 33% this year, up from 22% in 2006, company officials said. The average screen size jumped to 28.3” in 2006 from 24.7” a year earlier, and even beat Corning’s projection of 27”. The average size reached 29” Q4, when industrywide LCD TV sales hit 16 million units, up from 10.5 million Q3, Corning officials said. The average is expected to hit 30.5” this year, company officials said. Fifth-generation and larger LCD glass substrates accounted for 87% of Corning’s Q4 capacity. Corning shipped “several million” square feet of 8G glass Q4 to Sharp, company officials said.
Overall, Corning swung a $646 million net profit from a $33 million loss a year earlier as revenue rose to $1.36 billion from $1.20 billion a year earlier. The earnings benefited from a $28 million gain on the sale of land near Corning’s Samsung Corning Co. CRT joint venture in S. Korea, a spokesman said. Corning recorded a $112 million equity loss in fiscal 2005 from the CRT glass venture, which posted $823 million in revenue, down from $1 billion in 2004. Corning also took a $44 million charge against earnings to cover the sale of cable and fiber equipment in Europe, the spokesman said.
Corning’s Display Technologies business posted an increase in Q4 net income to $461 million from $368 million a year earlier as revenue jumped to $619 million from $518 million. Corning’s equity earnings from SCP rose to $461 million from $368 million a year ago as glass volume increased 46%, the company officials said. Corning has said it would continue to expand production in Taiwan this year and is building a Beijing glass finishing plant expected to open in 2008.
In telecommunications, which includes a fiber-to-the- premises (FTTP) business for Verizon’s FiOS IPTV service, Corning swung to a $54 million net loss from a $75 million profit a year earlier, despite a rise in revenue to $404 million from $383 million. FTTP sales for the year totaled more than $225 million, company officials said. Corning has received “strong interest” from other customers including AT&T, which is building out fiber-to-the-node and fiber-to- the-curb (within 500 ft. of customer premises).
Corning also is in tests with potential customers for its green lasers, a company spokesman said. Corning’s technology was demonstrated at CES as part of Microvision PicoP device that delivered 800x600 resolution and 25 lumens. It’s designed to be integrated into cellphones. Corning unveiled the technology a year ago, and executives said at the time it was considering manufacturing the lasers borrowing from its experience in optical semiconductors (CED Feb 6 p3). Manufacturing plans for the green lasers aren’t firm, a spokesman said.