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Reduce Fab Utilization Catches Up w/Corning
September 23, 2019
 
Corning, seeing lowered utilization at a number of panel producers in the 3rd quarter, reduced display glass industry volume from a decline of 2% - 3% to a decline of 7% to 9%.  Corning’s display business itself, is still expected to see positive volume as it continues to ramp its Gen 10.5 facility, and will outperform the market, but the amount by which it outperforms will be dependent on the progress of their Gen 10.5 client, and less on the overall market. Corning had already factored in some utilization rate decreases when giving 3Q guidance, but apparently, the actual rates were lowered than Corning expected. The company expects rates to recover in 1H20 assuming inventory levels, in China, can be reduced to more normal, post-holiday levels.  Corning does not expect any changes to glass pricing, which has been extremely well contained over the last few years and are currently expected to see declines in the low to mid-single digits (unchanged), essentially flat with 2Q. Corning is instituting cost reduction programs which should begin offset the lower (39% instead of 40%) gross margin expected in the 2nd half, but will keep SG&A and R&D expenses consistent on a percentage basis. Corning’s other busine3ss units (Environmental, Specialty Materials, and Life Sciences) all remain unchanged for the period., while Optical, which was expected to show growth (low-to-mid single digit) this year, is now expected to see a decline of 3% to 5%. 
 
Appleawarded Corning a $250m grant from its $5b Advanced Manufacturing Fund, which invests in US manufactures, including itself.  The fund made a similar grant to Corning ($200m) in May 2017. There is widespread speculation that Apple is encouraging Corning’s work on foldable glass and that Samsung is testing ultra-thin bendable glass from Schott for the inner display of its next foldable smartphone.  Per a Bloomberg report. Corning has also been working on a bendable version of Gorilla Glass. The company has been targeting a “3- to 5-millimeter bend radii” for its 0.1 mm thick glass. This will make a foldable phone as thin as 6-10 mm, with the folding screen wrapped around the outside.
Apple was rumored to be considering an investment in Foxconn’s  Wisconsin panel fab and with a recent investment of $100m in Japan Display, Apple seems to be protecting its supply base from the US/China trade war, while it figures out how to deal with slower iPhone sales.