Many new technologies have emerged in the displays market, but LCD remains the dominant force. Andrew Beck, director of Worldwide Commercial Operations at Corning’s Display business unit, believes LCD will continue to dominate the market for years to come because of its technlogical maturity and low production costs.
DIGITIMES recently talked to Beck about the displays market, the current challenges the industry faces, and the long-term outlook of the LCD market.
Q: What’s the current situation in the displays market? Overall demand doesn’t seem too good though I can see that Corning’s displays sales were still pretty strong in the first quarter.
A: Yeah, you probably saw our earnings release. We saw very strong sales in the firt quarter and the pricing was slightly up. Even though retail was a little bit down in the first quarter, many panel makers continued to run quite strong driving strong volume for glass.
For panel makers, they’ve seen declining panel prices, since late third-quate 2021 through Q4, and and that’s continued into Q1. You know, TV panel prices dropped first before IT devices. We’re hopeful that we can reach the bottom soon for panel makers, and then they can return to more profitability on the panel side. But we see a lot of pressure right now on those panel prices, as retail demand comes in weaker, and then they’re just more uncertainty driven by a number of factors, including Ukraine-Russia war, or China lockdowns. Every industry is worried because they’re just so uncertain how long these factors are going to last and how much impact there will be both on the consumer side, and the supply chain side. So I’m sure everyone you’re talking to is concerned about the China lockdowns.
Q: How much has purchasing cost increased over the last year for Corning, or for the panel industry in general because of the lockdowns, the war, the inflation, the logistics problems?
A: I can talk just in terms of our own perspective. Panel makers could tell you best how much their costs have increased. I think that we’re in the inflationary environment and every manufacturer is facing increasing costs. We’ve talked about that in our earnings calls. And one thing that we’ve been working very hard to do is to offset those costs as best as we can with productivity and in other areas. In Q2 of last year, we announced that we’re going to be raising prices for our LCD glass. And one of the comments we made is that we’ve been absorbing these higher costs for as long as we can and, and driving productivity to offset them as best as we can. But then we needed to move forward with a very small price increase. And in fact, our price increases relative to other components was quite small. And if we look at a number of other component costs for LCD manufacturers, the supply-demand situation there drove really high double digit price increases for quite some time.
So as you know, we announced price increases in Q2 and Q3 of last year. And we have talked about pricing in our latest earnings results. And so you saw that pricing was slightly up in Q1 this year and our expectation for Q2 is to be slightly up again. That being said, I think, it continues to be true that relative to a number of other components, I think that any price increases in glass are quite small compared to what other components are feeling.
In terms of logistics, I think that’s an area that’s driving up costs for the display industry. It’s also driving the need for more inventory to be out there, whether that’s inventory sitting on a ship in LA, waiting to be unloaded, for an extra two weeks. There’s just a lot more inventory in the system to accommodate the logistics challenges. And of course that translates into to higher carrying costs for everybody along that value chain.
Q: Are you still optimistic about the handset market this year, because there are so many mixed messages coming from different sectors about the smartphone market? And how about other applications?
A: There’s a lot of different opinions on the smartphone market. But I’ll just start with TV and then work my way down into smaller size. So we continue to believe that there will be retail growth in TV, primarily in the second half. So through the first half of last year, there was very strong retail sales, and a lot of that was driven by COVID lockdowns, largely in North America. And also, with a lot of government stimulus money in consumers hands, they were going out buying a lot of large TVs. So that was driving the strength that led to the whole industry running very, very high utilizations through even Q3 of last year. And at the end of the summer, as economies were opening up, we saw retail sales drop quite a bit. And so in TV, retail sales have been a little depressed since then. But our view is that by the second half of this year, those retail sales should pick up again. So, you know, the guidance we gave in our recent call was high single digit retail growth and that is what we expect to see for full year 2022, with most of that happening in the second half.
There’s seasonal demand driving it. But we also see it as part of a larger cycle, right where you saw the strong first half of last year. And then by second half of this year, you will have basically a full year of slow retail sales. We do believe that it’s kind of time in that larger cycle for retail sales to pick back up again and get closer to the mean, that kind of a long-term growth mean. And then for TV, screen size growth is a driver of glass and panel volume. So for TVs, we expect about one and a half inches of screen size growth per year for the average. That’s also strong contributor to growth overall on these panels and in terms of our glass growth in the IT space and moving down to kind of smaller screen sizes. There IT again with the pandemic was very strong. We saw notebook numbers, just going up to levels that probably many of us in the industry didn’t think would happen ever again. So, even coming into this year, I think many of the brands and panel makers were actually still a little bit bullish on it this year. We were less so; we felt like it would be flat or slightly down on the IT space.
Q: What’s reason for Corning’s conservative outlook for the IT market?
A: The high numbers were mainly driven by pandemic-induced demand, and more like one time events as opposed to a new normal. Because all this pandemic purchasing has led to the institutionalization of having more notebooks in schools. And that probably won’t go away. But especially on the consumer side, we see that the kind of pandemic-driven demand is unlikely to repeat at a sustained higher level. And then on the on the phone side, I think we see relatively stable demand. But the one thing that has people worried would be the supply challenges coming out of China lockdowns. So I think the fundamental demand for phones remains pretty stable. I think the key concern or uncertainty would be the uncertainty around the lockdowns, and just how much of the supply chain gets impacted.
Q: Are there any other market sectors that look more promising? For example, the car industry and EVs?
A: Yes, there are some very hot sectors right now that are getting a lot of attention. So certainly auto is very interesting for displays. Many display manufacturers are working closely with the auto OEMs on next-gen design, and because of the design cycles in auto are so long – three, sometimes four years to get fully designed into a vehicle. Those are a big focus. I was at Touch Taiwan 2022 several times and automotives were a key focus. So I think that is a big area of opportunity, as we see displays proliferate throughout the vehicle.
Another area that we expect significant performance in terms of growth is public information display. This has been a sector that we’ve tracked for a long time and continue to think it should really be taking off. I think we’re starting to see new applications. And China and other economies are really starting to invest in this space. So that is an area that I think is likely to outperform some of the other segments that are more mature.
Q: For the panel industry, China now has the most production capacity. Can you briefly talk about the demand for glass from Taiwan, China and Korea? Who’s using more glass? And are they increasing the demand?
A: I can’t really comment about individual customers. As panel capacities come online in China, and Taiwanese manufacturers have found themselves competing with these other fabs that may have newer equipment, or may have government subsidies of helping them. I think the Taiwanese industry overall, and each company individually, has done a really nice job of charting out a strategy that helps them compete in this environment. If you look at where the panel makers in Taiwan are focusing their efforts today, they’re focusing on producing the highest-end panels. Because they know that their competitors in China are maybe a few years away from having that kind of technology, so they’re really leveraging their experience and their own technology to differentiate themselves. And you drive into some of these segments, where others that are maybe newer to the industry just can’t compete. And that’s helped them especially last year as they were so successful. That’s helped them on the margin side, because these are higher-end models that are able to command more margin.
I think what you’ve seen then is, while they are still big suppliers in the TV space, they’re really focused on some of these higher-end smaller devices, whether it’s IoT, or high-end, mobile or other devices. And then they’re also looking beyond the LCD display? They’re looking at other display technologies and services that really leverage their core capabilities that they’ve built over the last couple of decades in this industry.
Q: What’s the longer term prospects of the glass industry, let’s say five years from now?
A: We remain pretty optimistic about opportunities for glass, both in display and in other applications. And I think from an LCD standpoint, the LCD manufacturing base is just so big, and has managed to drag down to such low costs that even though other impressive display technologies are popping up – whether it’s OLED, or QD-OLED, or microLED – the cost basis of LCD is just so incredibly low, based on so many years of experience, that I think it will continue to have quite a bit of staying power for years to come.
Even though certainly at the high end, some of these other applications will start to make a little bit of space for themselves. But it’s hard to imagine any vast shift away from LCD technology. It’s remained so versatile, capable of competing against these other technologies. From an LCD standpoint, we remain positive. And like I said, this growing screen size, even when TV unit volume is flat, you still have higher volume and helps the panel makers and glass makers.