LCD TV Growth Exceeding Our Wildest Expectations, Corning Says

LCD TV last year “began to make gains” at plasma’s expense in the “increasingly important” 40W and larger screen segment, he said: “Clearly we are past the tipping point signaling continued technical substitution.” But LCD TV’s growth “comes with some pain,” as sales are “skewed” sharply toward Q4, Volanakis said. “This seasonality creates unique operational and competitive challenges for all of us in the supply chain,” he said. “Seasonality aside, demand should be strong in 2007, and the glass supply-demand situation should promote a more favorable pricing environment.”

Average LCD TV screen size reached over 28” by the end of 2006, Volanakis said, citing preliminary Corning data. That’s 3-1/2” larger than the average from a year ago, he said: “This represents a 31% increase in screen area and consequently in glass area.” The “combined impact” of growing penetration and larger average screen size drove demand for LCD glass 50% higher to 1.2 billion sq. ft., he said.

Demand for LCD glass this year is expected to grow in the “mid-30%” range, Volanakis said. Demand growth “will be even greater” in glass for larger screen sizes, he said. Demand for Gen 6 and larger glass will grow faster than demand as a whole, rising 55% annually through 2008, he said. LCD TV glass demand “in absolute terms” is expected to grow by at least 400 million sq. ft. this year, he said. That’s larger than any previous yearly increase, he said: “As a matter of fact, that’s larger than the incremental volume of 2001 to 2004 combined. So while the percentage growth over time is declining as the base grows, we're still talking about enormous year-to-year unit growth.”

Last year was the first time glass demand for LCD TV outpaced that of LCD monitors, Volanakis said. Glass demand for LCD TVs is expected to more than double to 1.1 billion sq. ft. in 2008 from 500 million sq. ft. last year, he said: “So for 2008, glass demand for LCD TV alone will be nearly the size of the entire glass market last year.”

“The big question” is whether there will be enough panel capacity to meet the soaring demand for LCD TV glass, Volanakis said. Corning thinks there will be, he said. “As they have in the past, panel makers may slow down or speed up” adding plant capacity, “depending on market pull,” he said. “Our internal assessment of their collective plans nevertheless indicates that there will be sufficient capacity to support the end market’s expectations,” he said. Most future plant capacity will be for Gen 6 and larger screens, he said. “These sizes are well-suited to deliver the necessary cost reductions for LCD TVs to meet lower retail price expectations.”

By 2008, Corning expects plasma TV penetration globally to grow to 8%, Volanakis said. The 45% penetration expected then in LCD TV will include “substantially all” of the 30W- 39W segment and 2/3 of the “increasingly important” 40W-49W segment, he said. Global LCD TV penetration will reach parity with CRT penetration by 2008, he said. By 2010, about 40% of all TV sets sold will be 40W and larger, vs. 20% in 2008, Volanakis said, and “our consumer research indicated that may be conservative.” LCD TV penetration is expected to grow to 61% by 2010, making it the leading TV set technology, he said.

Since 44% of LCD TVs are sold in Q4, any change in “retail sales patterns affects the entire supply chain,” Volanakis said. In first half 2006, the industry was burdened with excess inventories that “had to be depleted” in 2nd half, he said: “The supply chain has learned from that and is adapting by adjusting buffer inventory levels, plant utilization rates and employing alternative shipment approaches… During periods of peak demand, when inventory levels are low, it can take as little as 2 months for our glass shipments to show up at the retail level. However, during periods of low demand, when inventory levels are being increased, this time period can be extended beyond the usual 3 months to as long as 6 months.”

Corning thinks investors may have placed “too much emphasis” in recent months on “slight” plant “utilization rate adjustments” at a few panel makers, Volanakis said. “Let me be clear on what we mean. Substantial utilization rate declines at multiple panel makers is something you should watch. That could be an indication of a broader panel inventory build in the supply chain. We would consider small utilization rate changes by a few panel makers in any given month or quarter to be fairly normal and routine.”