Corning Sees 6 Percent Declines in LCD Glass Prices in Q1

The Q1 glass price decline would be in addition to a 5 percent drop in Q4, well above the typical 2-3 percent quarterly decrease Corning has experienced in recent years, Avian Securities analyst Andrew Abrams said. The downturn in Q1 is expected to “moderate” in Q2 as CE companies get “glass capacity more in line with demand,” Corning Vice Chairman and Chief Financial Officer James Flaws told analysts in a conference call. The oversupply of LCD glass emerged as LCD TV sales grew 13 percent in 2011, short of a forecast for an 18 percent increase, Flaws said. Corning is projecting 10 percent growth in LCD TV sales this year to 230 million units, Flaws said. Industrywide LCD glass volume across TVs, monitors and PCs will increase to 3.6 billion square feet this year, up from 3.25 billion in 2011, Flaws said.

Corning’s display business remains profitable -- analysts peg its gross margin at around 80 percent, although it fell to 63 percent in Q4 -- but the sales growth is dropping to levels that weren’t expected to be reached until 2014-2015, Corning officials said. To maintain business in Q1, Corning has “advanced” price declines “to provide financial relief” to its customers and has completed Q1 price negotiations with most of them, company officials said. Industrywide LCD inventory stood at 14 weeks in Q4, short of Corning’s forecast for 15 weeks and will likely decline another half-week this year, Flaws said.

Corning remains mired in a pricing dispute with a major Korean customer that didn’t honor a supply contract in Q4, analysts said. Corning hasn’t identified the customer, but the Samsung Corning Precision (SCP) joint venture has borne the brunt of the default (CED Nov 30 p1). Samsung Electronics accounts for 85-90 percent of SCP’s business. Corning’s equity earnings from SCP rose 14 percent from the previous quarter to $192 million, but declined from $382 million a year earlier. Corning’s Q1 equity earnings from SCP and Dow Corning, are forecast to decline 5-20 percent, depending on whether SCP gets a new pact with the Korean customers, Flaws said. SCP’s Q4 sales declined 7 percent from the previous quarter to $790 million and were down from $1 billion a year ago (CED Jan 26/11 p1).

"This reset in the display industry, as well as the pressure at Dow Corning, had us feeling like the company is approaching a new floor in terms of profitability,” Flaws said. While Corning expects “strong growth” other business segments, including telecom and specialty materials, the display group “is not likely to grow,” but will generate “strong profits and cash flow,” Flaws said.

As Corning struggled with LCD glass pricing, it took a $83 million restructuring charge in Q4 in specialty materials to write down the value of equipment for large-size Gorilla glass. It also took a $12 million after-tax charge related to Gorilla glass tank installed at SCP, the company said. While Corning made a major push in Gorilla as TV cover glass, it landed only one customer, Sony, which continues using the glass at “reduced levels” in 40-, 46-, 55- and 60-inch sets, a Corning spokeswoman said. Q4 Gorilla glass sales declined 25 percent from the previous quarter to $161 million and ended the year at $710 million, short of a $1 billion target (CED Feb 7 p1). Corning makes Gorilla glass for smartphones and tablets at a plant in Harrodsburg, Ky., which recently completed a $180 million expansion. It also produces Gorilla glass at a former Sharp fifth-generation LCD factory in Shizuoka, Japan. Corning rival Asahi Glass also has reduced production.

While Gorilla failed to take hold as a TV cover glass, it has scored design wins in Acer, Apple, Motorola, Samsung and other tablets and smartphones. Perceptive Pixel also demonstrated a prototype multitouch 82-inch LCD commercial display using Gorilla cover glass at CES earlier this month. Corning introduced a second-generation Gorilla glass at CES that shrinks its thickness to 0.4mm from 0.6mm. Despite the new introduction, Gorilla glass “might see some price declines” this year as manufacturers seek to lower costs, but isn’t “seeing any competitive pressure,” Flaws said. The Gorilla glass manufacturing process requires more steps including 2-3 finishing companies that cut it into pieces and apply chemicals as well as firms that assemble touch panels. Some glass is lost in the finishing process and “we need to improve yields,” Flaws said. “There are a lot more steps than in the LCD business and we need to get better at understanding how much inventory is at each step,” he said. “Our goal is to create a model similar to LCD, but we have a long way to go.” Corning also is expected to demonstrate 0.1mm thick flexible glass at an investor conference Feb. 3 in New York City, analysts said.

In light of the over-supply of glass, Corning cut capital spending this year to $1.8 billion from $2.4 billion. But Corning expects to begin a “paced start up” of production in the second half at a new 8.5G glass plant in Beijing. The facility is located across the street from BOE Hydis’ 8.5G LCD factory that has started manufacturing using glass from other Corning plants, Flaws said.

Corning’s Q4 net income narrowed to $491 million from $1 billion, despite net sales rising to $1.88 billion from $1.76 billion a year earlier. Display net income shrank to $492 million from $880 million year earlier as revenue rose to $780 million from $750 million. Specialty materials’ Q4 net loss grew to $105 million from $3 million a year earlier when it incurred $130 million in restructuring and impairment charges. Sales improved to $238 million from $197 million, Corning said. Telecommunications profit rose to $26 million from $19 million as sales jumped to $490 million from $443 million.