William Trent_

From Corning's Conference Call: LCD Market Update

What is your estimate of the cash flow?

From Corning's Conference Call: LCD Market Update

Whatever businesses Corning has, the cash flow is the cash flow. Paying a high multiple for it only makes sense if it will grow significantly.

1. Most of Verizon's fiber spend is for the electronics, not the fiber itself. Besides, we were covering telecom back in 2000 when the same things were being said. Telecom equipment is a cyclical business and the fact that it is just now break-even three years into the latest up-cycle is a real concern.
2. Name 2 auto suppliers that haven't filed for bankruptcy recently.
3. Coulda shoulda woulda.
4. Thanks for the idea for a new post. We are always suspicious of 50/50 JVs accounted for under the equity method, as they are often a way of taking liabilities off the balance sheet more than anything else. Corning's past record is particularly bleak (silicon implant suits, anyone?) We haven't looked closely at Dow Corning in years, so there may be some real fodder there.

As to the last point, you make the same one as we. FCF will improve due to lower capex and operating cash flow will be higher when the market matures. The question is by how much. (And there will still be some capex, just less of it - so the $1.3 billion is only the maximum.

From Corning's Conference Call: LCD Market Update

Judging from the monitor market, it seems likely that the penetration of LCD TVs will be in the 80% range very soon - perhaps 3-5 years. After that time, the growth is likely to approximate the growth of the overall TV market.

Each investor can decide for themselves whether Corning's current valuation (EV = 77.5x trailing FCF) is too high or too low given expectations of 3-5 years of very high growth followed by average growth in perpetuity. The terminal multiple should be about 15x, so the questions are how much operating cash flow will grow in the next 3-5 years and how much lower the Capex requirements will be when the market matures.

Is LCD Market Overcapacity Being Reined In?

The next question, then, is whether you want to bother owning the most profitable company in a highly capital intensive, cyclical and low margin industry (see DELL.)

Your point is well taken that the first to offer a given technology could have advantages. Of course, that assumes that consumers still have money to spend on the highest-end TVs come 2009. If not, rather than making 60" TVs Sharp could use the same 10G plant to make many more 42" TVs - thus further adding to the glut there.

I wholeheartedly disagree, however, with your second paragraph. Overcapacity, anywhere, is <i>always</i&... an industry problem. It may have a greater impact on some players than others, but price wars help no one but consumers.