Market Gets Nervous About LCD Panels

Shares of glass maker Corning (GLW) and LCD panel producers AU Optronics (AUO) and LG Display (LPL) are all down sharply today amid a new wave of market jitters on the prospects for the flat-panel display market.

Several recent Street research reports note that conditions in the LCD panel sector have been difficult for much of the third quarter, raising questions about the companies’ ability to hit current Street estimates.

Brian White, an analyst with Collins Stewart, noted in a round-up piece on the electronics supply chain today that he visited last week with three leading Taiwan-based LCD panel makers, and came away with a “reinforced” cautious stance on AU Optronics, which he rates Hold. He said the trip also provided “incremental concerns regarding our near-term financial estimates” on Corning. “Based on our visits, we believe LCD panel pricing at the Taiwan players has been worse than expected thus far in the September quarter with PC monitors experiencing the most pricing pressure,” he writes. White does say that the rate of price declines began to slow during the second-half of August, and that the worse may be over for the near-term.

“With severe pricing pressure at the LCD panel makers and reduced utilization rates due to inventory in the channel, we believe certain (but not all) Taiwan - based LCD panel makers have requested and received improved LCD glass pricing during the September quarter, which is a directional shift in pricing for the glass market and worth monitoring since this could negatively impact Corning,” he writes.

In a note dated yesterday, Lehman’s James Kim wrote that he maintains a cautious view on LCD panel, component and equipment makers. “The current utilization rates and line schedules are not enough to break the vicious industry cycle, which is inducing rapid price falls,” Kim writes. “We expect that there is more downside for LCD panel names in terms of stock prices.” And he says there will also be a negative impact on component makers and equipment providers. He now expects 3% oversupply in the industry in 2008, and 8% oversupply in 2009.

This morning, Citigroup’s Jonathan Rhee reduced his price target on Korea-based LG Display to 37,000 won from 54,000, citing “the recent sharp IT panel price decline,” which he says stems from the global macro slowdown and increased oversupply risks for next year.” He does maintain a Buy rating on the stock, however.

Meanwhile, UBS analyst Sean Kim repeated his short-term Sell rating on LG Display, asserting that the stock “could weaken further as downside risks from LCD TV panel price declines are not fully priced in.”

All that negative sentiment is taking a toll: Corning today was down 58 cents, or 2.82%, to $19.96; AU Optronics is down 70 cents, or 5.86%, to $11.24; LG Display is down $1.39, or 11.3%, to $10.93.

Comments

[kmca1989:]

bullish on corning

2008 Sep 02 07:26 PM

[BxCapricorn:]

Um, I've read 345 message boards today, and they all swear that their stock is down because of [enter any reason, no matter how ridiculous]. The average myopic investor and poster, is convinced that some item they have been thinking about, has appeared to be greater in significance than they thought (ex. your article). You'd have to hang around Charles Barkley in Las Vegas to understand that normal table games are being distorted by desperate big money bets. I normally like your posts, here and on Barron's, but a word of advice. Clear your short term memory through the clever application of Merlot.

2008 Sep 02 07:53 PM

[andyn:]

This news is priced in. GLW was already slaughtered from $28 in Mid may to $20. People of course over-react and sell things off when analysts just re-jig old data. This stock is attractive on a valuation basis and should go back up to $24 by Dec-end on holiday shopping.

2008 Sep 03 09:28 AM

[bill stenner:]

I heard that LG is supposed to be introducing a 40 some odd inch OLED very soon... so if that is true then yes LCDs would be a short bet but they could easily make up in sales of OLEDs. This would make sense in that people are trying to make the stock an easier buy at a lower price to take advantage.

2008 Sep 03 05:04 PM