LG Display, AU Optronics (AUO), Chi Mei Optoelectronics (CMO), Nippon Electric Glass Rise

After news that an earthquake that shook Japan disrupted Corning’s Shizuoka-based LCD glass plant shares of LG Display, AU Optronics (AUO), Chi Mei Optoelectronics (CMO) and Nippon Electric Glass (NEG) rose significantly. LG Display, one of the world’s largest LCD manufacturers, increased 2 percent to a one-week high at 11:33am Seoul time according to Bloomberg. AUO and CMO, Taiwan’s two largest LCD suppliers, also rose in Taipei. NEG, a Corning competitor but much smaller in LCD glass substrate manufacturing capacity, saw its shares rise 4.5 percent.

Deepen Glass Shortage The factory disruption at Corning’s Shizuoka plant will have a material impact on the supply of LCD glass substrates needed to manufacture LCD panels that go into netbooks, notebook PCs, LCD monitors and LCD TVs. The impact according to Corning is about a 5 to 10 percent drop in glass volume in the third quarter for its wholly-owned facilities. That also means that its joint venture with Samsung, Samsung Corning Precision (SCP), is not included in that calculation. SCP supplies LCD glass to Samsung and LG Display. LG Display procures LCD glass from SCP as well as suppliers based in Japan such as Asahi Glass Co. and NEG. LCD manufacturers located in Japan may experience more difficulty in procuring all their LCD glass needs. The largest of these companies include Sharp, Panasonic and IPS Alpha.

Production in Japan The Japanese archipelago is located where several continental and oceanic plates meet that causes frequent earthquakes. There are many volcanoes located in Japan as well. Earthquakes that occur below or close to the ocean may cause tsunamis as well. The worst earthquake in Japanese history was in the Great Kanto Earthquake that hit near Tokyo in 1923. Over 10,000 people died. In 1995, the Great Hanshin Earthquake hit Kobe and killed 6,000 and injured 415,000 people. Prior to the 6.5 earthquake on August 11 with the epicenter around the Tokai area there was another slightly larger 7.0 earthquake two days earlier with the Izu Islands as the epicenter. My opinion is that in the long term some manufacturing operations located within Japan will migrate away from Japan to less earthquake-prone countries such as Korea, Taiwan or China.

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