Glass shortages expected to linger

Corning Inc, the world's largest maker of glass used in flat-panel computer and television displays, said shortages of the material may last until next year because of stronger-than-expected demand.

Corning aims to double output by the end of next year and expects a 30 percent to 50 percent rise in flat-panel display shipments a year, Don McNaughton, a senior vice president in charge of flat-panel glass production at the New York-based company, said in an interview in Taiwan.A shortage of parts in the US$37.7 billion global flat-panel market boosted prices of some displays by 45 percent last year.Panel makers such as AU Optronics Corp will need to stabilize prices to stop computer companies including Dell Inc holding off on purchases until costs come down, investors such as James Johnstone said."Prices are choking off demand," said Johnstone, who helps manage the equivalent of US$90 billion globally for Gartmore Investment Management in London. If prices continue to rise, computer companies may go back to selling tube-based monitors that retail for less than a third of the price, Johnstone said.

He plans to cut his holdings in Taiwan's flat-panel makers on concern Dell and Hewlett-Packard Co may scale back purchases to avoid holding inventories of the displays when shortages such as glass and semiconductors ease and prices drop.

"There's a big crunch coming," he said.

Corning said that about 75 percent of US$600 million that it's budgeted for expansion between now and the end of next year will be spent in Taiwan, where the company is opening its first factory. AU Optronics, Taiwan's largest maker of so-called liquid crystal displays, is doubling capital spending this year to NT$85 billion (US$2.5 billion).

Display makers are opening factories that will help reduce costs by using larger glass panels from which screens are cut.

"As Corning continues to ramp its capacity worldwide, those shortages will ease," said Corning's McNaughton. "Going into 2005, glass will remain tight, but perhaps not in shortage."

The price of a 15-inch flat-screen desktop monitor has stabilized at about US$350 after rising from about US$240 a year ago, Johnstone said. Prices of other panel parts such as color filters and chips that control the screens' operation have been rising on shortages, he said. Corning said it hasn't been raising glass prices.

Corning has developed a patented process that involves cutting a sheet of melted glass into eight screens measuring 30 inches diagonally for use in televisions.

Corning said it is the first and only company that can provide the larger sixth-generation glass. This glass is of uniform thickness and does not need to be polished.

Corning's shares have gained 5 percent since Jan. 1, compared with a 1 percent gain in the Standard & Poor's 500 Index in the same period. The company's main business, optical fiber for the telecommunications industry, is still "flat," Corning said.

"The shortages of glass may end this year, maybe next year," said AU Optronics President Chen Hsuen-bin in an interview at an opening ceremony for Corning's first plant in Taiwan. "Screen makers are shifting to larger panel dimensions, which is consuming glass capacity."

AU Optronics shares have gained 49 percent since Jan. 1, compared with a 12 percent gain for Taiwan's benchmark TAIEX in the same period. The shares of BenQ Corp, a Taiwan affiliate of AU Optronics that assembles desktop monitors and notebook computers, have gained 8 percent in the same period.

Part makers need to speed up capacity increases to keep pace with soaring demand.

Shares of Hsinchu, Taiwan-based Novatek Microelectronics Corp, which makes chips that control flat-panel displays, have gained 38 percent since Jan. 1. Novatek said it had more demand than it could meet in the second half of last year.

Shares of Sintek Photronic Corp, which makes color filters for flat-panel displays in Taiwan, have gained by 30 percent since Jan. 1. AU Optronics said color filters will also remain in short supply this year.

Demand for flat computer monitors will increase by two fifths to more than 17 million units this year, according to Texas-based researcher DisplaySearch.

The market for flat-panel TVs will more than double to 9.8 million units, from 4 million last year the company predicts.

Demand for glass will rise even faster as TV screen sizes increase.

Largest Supplier AU Optronics and Taiwan's five other makers of screens for PCs and TVs will help the country overtake South Korea this year as the world's largest supplier, DisplaySearch said earlier.

600450 Glass shortages expected to linger
Date: 23 March 2004

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