Who Benefits From Falling Flat-Panel Prices? Corning (GLW)

Includes: AUO, GLW, LPL

Apple Cinema DisplayA quick stock-related comment on the sharp price declines in flat-panel TV prices this quarter:

Declines in flat-panel TV prices are caused by two factors. First, as new manufacturing plants come on line, variable manufacturing costs fall, resulting in lower selling prices. Second, the flat-panel manufacturing companies compete aggressively, because the fixed costs of investing in manufacturing plants are hefty, and maximising throughput helps cover the fixed costs. But that aggressive price competition means that many companies in the flat-panel manufacturing chain may suffer from reduced profitability, as price reductions cut into gross margins.

The exception is arguably Corning (NYSE:GLW), which is the leading provider of thin glass for flat-panels. Corning has a near-monopoly position in the flat-panel glass industry. (There's one other major player, but Corning's technology is probably superior.) Corning learned from the boom-bust cycle in the optical fiber market that capital intensive factories were risky; so when it expanded its production for the flat-panel market it got the flat-panel display manufacturers to contribute capital for its new factories.

Most important, the larger flat-panels become, the more glass Corning sells (and at higher prices). And because the flat-panel glass business isn't nearly as competitive as other areas of the flat-panel business, Corning should face significantly lower price pressure than the screen manufacturers.

All of which suggests that in contrast to AU Optronics (NYSE:AUO) or LG Philips (NYSE:LPL), Corning should actually benefit from rapid declines in flat-panel prices and the consequent rise in demand and volume.

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