Corning Lowers Global TV Unit Forecast on Slow Sales in Europe, Japan

Corning earlier this year projected a mid-to-high-single digit percent increase in TV unit shipments (CED April 25 p1), but it revised the forecast amid slowing demand in China, where a subsidy program ended in May, Corning executives said. Global TV shipments increased 3 percent in 2012 to slightly more than 200 million units. Meanwhile, panel inventory at retail increased to 18 weeks in Q2 from 17 weeks the previous quarter, but was down from 18.7 a year earlier, Chief Financial Officer James Flaws said. Inventories stood at 15.5 weeks at the end of Q4 2012, Corning officials have said. The added inventory also is partly tied to a broader array of screen sizes, including 39-inch and 29-inch, Corning officials said. “There has been an excess of 32-inch TVs building in China, but that is the only area with a potentially significant problem that’s localized,” Flaws said.

The inventory buildup came despite strong sales of 50-inch and larger TVs amid falling retail prices, Corning executives said. Global sales of 50-inch and larger TVs jumped 118 percent through May, driving increased demand for glass, Flaws said. TV glass price declines in recent quarters have been moderate, in the 2-3 percent range, and are expected to remain so for balance of the year, analysts said. This comes despite expectations that Nippon Electric Glass (NEG) will add production capacity in South Korea for customer LG Display, analysts said. NEG is expected to add capacity at a “very moderate pace” in focusing on expanding its smaller glass tanks, analysts said.

Corning signed pacts with several major customers last fall (CED Oct 25 p1) with the aim of slowing quarterly price declines for LCD glass. The agreements are expected to expire in October, analysts said. Corning made the move last year after struggling with 6-7 percent price declines in late 2011 as glass supply outstripped demand (CED Jan 26/12 p1). While Corning’s wholly owned glass plants are operating at full capacity, some production at the company’s Samsung Corning Precision joint venture in South Korea has remained offline since late 2011, Corning executives said. Some of the South Korea capacity also has been transferred to China where Corning has a glass plant near BOE’s LCD panel factory in Beijing, a Corning spokesman said.

Meanwhile, the LCD cover glass market for smartphones and tablets -— dominated by Corning’s Gorilla Glass -- is expected to grow more than 30 percent this year in units, an increase the company hoped “would have been greater,” Flaws said. The increase was slowed by a buildup of cover glass inventory at Corning customers in late 2012, the bulk of which has sold through, Flaws said. Corning’s customers also worked to improve cover glass yields this year, he said. While Corning’s overall manufacturing capacity for display glass is “relatively full,” Gorilla glass production is “not as full right now” as customers work off inventory, Flaws said. Corning didn’t convert any additional production lines for Gorilla glass in Q2 and supply remains tight, he said. Corning air-shipped some orders for Gorilla glass in Q2, but hopes not to in Q3, Flaws said. “If you look at the amount of Gorilla being pulled from the supply chain to go into phones and tablets going to retail, we think it’s growing nicely,” Flaws said.

Having established Gorilla in smartphones and tablets -- iPads are among the larger consumers of the cover glass -- Corning this week unveiled a touch-enabled version of it for notebook PCs. Gorilla Glass NBT is said to offer eight to 10 times more scratch resistance than soda lime glass traditionally used in notebooks. The glass, which is expected to add $5-$10 to a notebook’s cost, also helps retain strength once a scratch occurs, Corning officials said. Dell, which along with Hewlett-Packard has deployed Gorilla glass in notebooks in the past, will field models this fall, Corning said. “A number of” other notebook suppliers are expected to ship products this fall with Gorilla, Flaws said. Flaws conceded that Asahi’s Dragontrail cover glass may have gained some market share competing with Gorilla. “We don’t have quite as strong a share as what we had originally, but it’s still extraordinarily high,” he said. Asahi introduced Dragontrail in 2011 when it appeared in a Galaxy Nexus smartphone developed as part of a Google and Samsung partnership.

Corning has suffered delays in landing agreements for deploying Gorilla in the automotive market, having hoped to have a pact by mid-year, company officials said. “I actually thought I would be already announcing an agreement” with an automotive supplier, but “we're still trying very hard,” Flaws said. “This is a fairly revolutionary product for the automotive industry, and it’s always hard to win your first one."

Corning didn’t release any new details on its flexible Willow glass, but plans to “talk more about it” when the company releases earnings in October, Flaws said. Willow glass, which is being produced using roll-to-roll manufacturing at Corning’s Harrodsburg, Ky., Plant, is sampling with potential customers, Corning officials have said. Corning also is “continuing development” of 3D autostereoscopic glass, said Flaws, declining to release details.

Corning’s Q2 net income improved to $638 million from $474 million a year earlier, as revenue grew to $1.98 billion from $1.9 billion, the company said. Corning’s gross margin rose to 43 percent from 41 percent a year ago. Corning’s display segment had a gain in Q2 net income to $314 million from $264 million a year earlier, as sales jumped to $670 million from $552 million, the company said. Corning’s equity earnings, which include its Samsung Precision LCD glass joint venture, slipped to $117 million from $144 million. Corning specialty materials segment, which includes Gorilla glass, had a 33 percent gain in net income, as revenue rose 17 percent from the previous quarter to $301 million, the company said. Corning’s telecommunications business, which supplies fiber cable, had a gain in Q2 net income to $60 million from $37 million amid strong fiber-to-the-home sales in Canada. Cable sales grew to $601 million from $559 million. Corning bought out its fiber cable joint venture partner Chengdu Telecommunications, adding $5 million in revenue in Q2, company officials said. The joint venture, Chengdu CCS Optical Fiber Cable, was formed in 2000. Corning’s fiber sales in China are expected to be flat this year, as telecommunications firms there delayed orders, Corning officials said.