phwting

LCD Market: Supply/Demand Balance Remains Out of Whack

The first line of the article that is NOT quoted reads

"Rapid price reductions are boosting sales of large-sized Liquid Crystal Display Televisions (LCD-TVs), prompting iSuppli Corp. to increase its forecast for LCD-TV panel shipments in 2007"
www.isuppli.com/news/d...


A more balanced story about supply and demand is at

www.displaybank.com/en...
"Looking at future demand on a square meter basis, although all TFT-LCD investments in progress will be put into practice, the sharp increase in demand will highlight an additional investment of $60 billion from 2008 through 2011.

The prediction is on the assumption that Samsung's seventh and eighth-generation (7G and 8G) expansion plans and LG.Philips LCD's 7.5G project will be all put into practice. Notwithstanding the involvement of the supposition that Sharp Corp. will be successful in boosting its 8G capacity to 70,000 units monthly by the end of 2008, the industry will not keep pace with the upward trend in demand for large-format LCD panels without an additional investment in 2008 and beyond."

From Corning's Conference Call: LCD Market Update

Corning is fairly valued according to Morning Star compared with S&P 500.
It's a steal with a peg of 1.1 vs 1.7 for the S&P500 in forward valuations.
quicktake.morningstar....;Symbol=GLW&st...
Since Corning is recovering from near death, 2005 ttm data is useless.
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1- Telecom is providing the cash for Corning's business. And it will gusher more cash once they reopen the shuttered fiber plant next year. The up-cycle is just starting to kick in so earnings should rocket per incremental revenue increase above break-even.
Corning is getting $241 million in fiber and cable products in Q3 and $64 million for fiber to the premise.

2- JCI, BWA,TRW,LEA. The point is the market for diesel emissions will grow to $1.2 billion-$1.3 billion by 2010, from less than $300 million in 2006.

3- Corning is inventing a lower cost way to test drugs. This points out the innovative ways Corning's R&D gets new business and markets. This is similar to the way the LCD glass business got started when optical fiber is all the rage. Am questing your assumption that onces LCD gets to 80% penetration, Corning's growth will slow down. Even in the computer monitor business at 80% penetration, AUO just said their growth in glass area is 40% yoy in their October 06 earnings call.

4- DowCorning illustrates the limited liability features of companies that Corning uses to survive. Please take a careful look at DowCorning since there is not much public data available.

My last point about FCF is you have to compute the earnings, growth etc for a similar period in time for a fast grower like Corning. You can't use trailing 2005 FCF and match it up with estimated 2010 growth rates. Since capital spending is the question here, a better estimate is operating cash flow for 2007-2010 to go with your estimated growth rate in 2007-2010.

From Corning's Conference Call: LCD Market Update

Corning is much much more than LCD glass.
1- It's telcom division is just at break even now. When the youtube driven video over ip takes over, demand for fiber to the home will explode. And Verizon is commited to spending billions till 2010 for FTTH.
2- The environmental division is just at break even or have slight profit even when the US auto industry is in a slump. The growth sector is in diesel filters where Corning have a 50% market share so far.
3- The life sciences division is plodding along also, but it's breakthrough in aiding the biotech/pharma industry to test new drugs could change things.
4-DowCorning is 50% owned by Corning and is a major supplier of polysilicon via Hemlock Semi. Polysilicon is high demand right now for solar energy.

You are mixing two different time periods in you arguments, forward domination and slowing growth of LCD TV's and trailing earnings and free cash flow.
If LCD gets to 80% penetration in 3-5 years and growth slows down, Cornings earnings and FCF from LCD will explode since no new investments need to be made to keep increasing units 100+% yoy. i.e. $1.3 billion can be save in 2006, 2007 etc.

From Corning's Conference Call: LCD Market Update

Trent is negative even on good news from Corning. The assertion that revenue growth won't match the penetration gains ignores TV size expansion.
ASP for LCD's is holding steady due to TV size expansion.
ce.seekingalpha.com/ar...
www.digitimes.com/disp...
content.infocommiq.com...;contID=99DF04A5-D5ED-...

The 25% LCD TV penetration rate is on new TV sales on a global market of $17.3 billion in 2005 with 5% unit growth in 2006 or about $4.5 billion.
times.hankooki.com/lpa...
www.digitaltvdesignlin...